Q4 results preview: FMCG sector likely to see muted revenue growth; margins to expand at a slower pace

The FMCG sector’s volume growth in the quarter ended March 2024 shall remain challenging with low-to-mid-single-digit volume growth driven by urban demand. Rural demand remains a concern with flat to low single-digit growth in many categories, according to estimates from Nuvama Institutional Equities.

However, outperformance can be seen in international businesses of most FMCG companies as against India operations.

While, winter demand rose a bit for winter care products, summer demand for carbonated beverages was weak due to unseasonal rains, which is likely to improve in Q1FY25 as IMD predicts extreme heat conditions. 

Overall, the consumer goods companies may see revenue growth of 2% in Q4FY24, with EBITDA and net profit growth 5% each, on a year-on-year (YoY), Nuvama report said.

“Demand trends on a YoY basis are largely stable versus Q3 trends. Likely good monsoons, upcoming general elections and freebies may revive consumer demand from Q2FY25 onwards. Real rural wages have now started moving on a positive trajectory,” Nuvama Equities said.

Also Read: Q4 results preview: IT sector likely to report muted revenue growth with stable margins; all eyes on FY25 guidance

On the margin front, gross margins shall expand YoY for many companies, but the pace of expansion is expected to be small. Shipping costs and delays due to the Red Sea crisis is also likely to have a slight impact in select cases.

Among companies, Nuvama Equities anticipates Pidilite Industries, Indigo Paints, United Breweries to lead volume growth, while in staples, it expects Godrej Consumer Products and Britannia Industries to lead the pack. 

United Breweries, Adani Wilmar and Pidilite Industries shall lead EBITDA growth, whereas Hindustan Unilever (HUL), ITC and Britannia Industries shall be laggards, said the broking firm.

Here are Q4 results estimates of some of the top FMCG companies:

ITC

ITC Q4 revenue is estimated to fall 1%, while operating profit or Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) is expected to fall 0.9% on a YoY basis. Net profit is anticipated to grow 3% YoY. 

Cigarette sales may grow 3.4% YoY with flat volumes, while four-year CAGR in cigarette volumes stays healthy at 3–4%, according to Nuvama Equities.

FMCG others shall grow 6% YoY led by pricing with volume growth in low single digits YoY. EBIT margins for FMCG Others is likely to stay flat QoQ, but dip YoY as the base quarter had high fiscal incentives, which were bunched up. 

ITC’s Hotel business continues to do well and the segment’s sales is expected to grow 16% YoY. While, agri sales shall clock a 13% dip YoY due to restrictions on exports of rice, wheat, etc with margins similar on a QoQ basis, paper and boards business sales shall also continue to be under pressure and are likely to dip 6% YoY, as per the brokerage estimates.

Hindustan Unilever

Hindustan Unilever (HUL) is expected to report Q4FY24 revenue growth of 1% YoY while EBITDA and PAT are likely to drop 2% and 4% YoY, respectively. The brokerage firm expects the company’s volumes to grow 3% YoY. EBITDA margin may dip 70 bps YoY due to high A&P, second year in terms of increase in royalty and GSK consignment arrangement expiry.

“We anticipate demand trends to be similar to Q3FY24 with marginal improvement in rural (across categories) on a two-year basis. Urban continues to grow faster than rural and premium continues to do better than mass for HUL. Elongated winters are unlikely to benefit much but trade inventory shall get cleared,” Nuvama said.

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Nestle India

Nestle India’s revenue, EBITDA and PAT is expected to grow by 6.5%, 8.9% and 10.9% YoY, while volume growth is likely to be 4% YoY. Nestle shall be less affected by a rural slowdown due to proactive steps and low salience in rural compared to others, according to the brokerage estimates. 

EBITDA margins are anticipated to expand 52 bp YoY to 23.5% driven by lower milk costs. Cocoa and coffee costs remain a worry, but analysts estimate a gradual pass through to end consumers.

Tata Consumer Products

Tata Consumer Products is expected to see revenue, EBITDA and PAT growth at 10%, 15% and 9.5% YoY, respectively. Overall gross margins and EBITDA margins are expected to improve by 218 bps and 64 bps YoY on the back of benign tea costs and stable salt costs. 

Also Read: India Inc pushes for temp hires in anticipation of a good summer

Britannia Industries

Biscuit maker Britannia Industries is expected to see revenue growth of 3% YoY in Q4FY24, while EBITDA is likely to remain flat with net profit declining by 3% YoY. The company’s volume growth is anticipated at 6% YoY. Gross margins shall decline by 17 bps YoY to 42.9%, while EBITDA margins are likely to compress by 57 bps YoY and stay flat on a sequential basis.

Dabur Q4 consolidated revenue, EBITDA and net profit is expected to increase 7%, 25.8% and 20.3% YoY. Domestic volumes are likely to grow 4% YoY. The India business is likely to grow 5.5% YoY and the international business by 11% YoY. 

Softening raw material costs shall help improve gross margin by 169 bps YoY to 52.5% while EBITDA margins are likely to expand 269 bps YoY to 18% on a low base.

The Parachute Coconut oil maker Marico is estimated to report flat revenue growth, but EBITDA and PAT growth at 13.2% and 12% YoY. Domestic volumes are seen growing 1.5% YoY. 

India pricing shall remain negative due to Saffola edible oils. International business is likely to grow 5% YoY. We estimate gross margins and EBITDA margin to expand 344 bps and 231 bps YoY on the back of a correction in copra prices and a low base. We anticipate Marico to ramp up ad spends to 10.4% of revenue, implying expansion of 113 bps YoY,” Nuvama said.

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Published: 03 Apr 2024, 01:57 PM IST