FMCG Companies since the past few quarters have been struggling in terms of volume growth and raw material inflation pressure which has been impacting the topline growth and margins. But with the easing of commodity inflation in the recent past and on account of festive seasons during the Oct-Dec 2022 quarter, there was the expectation of a revival in the performance of the FMCG Companies. Will FMCG companies recover in Q3FY23? In this article, we will discuss the Q3 updates of the FMCG companies and the overall outlook of the Q3 results.
For the article, we have considered the Q3 Results Update of Godrej Consumer Products Limited, Marico Limited, and Dabur India.
Industry Overview:1. Godrej Consumer Products Limited:
- GCPL in its Q3FY23 updated that it has witnessed slow growth driven by poor rural consumption and a slowdown post-festive season.
2. Marico Limited:
- Marico Limited has also stated that it has witnessed some improvement in demand.
- Urban and premium categories maintained their steady pace of growth
- Recovery in rural demand was not as discernible as retail inflation stayed at elevated levels.
3. Dabur India:
- For Dabur India, demand trends for the industry remained weak during Q3FY23 with rural markets continuing to remain under pressure.
- Early signs of moderate recovery were visible towards the latter part of the quarter coupled with some abatement in inflation.
Industry Forecast:
All the FMCG companies have stated that easing of commodity inflation, higher crop realizations, ongoing government interventions and likely stimulus from the upcoming Union Budget augurs well for the sector in the forthcoming calendar year.
Revenue & Volume Growth Expectations:1. Godrej Consumer Products Limited:
- At a consolidated level, the company expects to deliver sales growth in the mid-teens in constant currency terms and around double-digit in INR terms with flattish volumes.
2. Marico Limited:
- The company expects consolidated revenue in the quarter to grow in the low single digits on a YoY basis.
3. Dabur India:
- For Dabur India, The consolidated revenue is expected to report low to mid-single-digit growth.
Business Performance- India:1. Godrej Consumer Products Limited:
- GCPL expects to deliver double-digit sales growth backed by low single-digit volume growth.
- Also, the company reported sequential improvement from high single-digit sales growth and mid-single-digit volume decline in the previous quarter.
2. Marico Limited:
- The India business marked a slight improvement over the preceding quarter to post a mid-single-digit volume growth.
3. Dabur India:
- Dabur's India business is expected to report low to mid-single-digit revenue growth.
Business Performance- International:1. Godrej Consumer Products Limited:
- Indonesia's business for GCPL has started to see a gradual recovery in performance, with constant currency sales, and a decline in the low single digits. However, growth ex-Hygiene is marginally positive.
- Godrej Africa, USA, and Middle East (GAUM) continue its strong sales growth momentum, clocking double-digit sales growth in constant currency terms.
2. Marico Limited:
- The International business continued its healthy growth momentum with high single-digit constant currency growth, even while contending with implications of currency depreciation and high inflation in key markets.
- Bangladesh held steady despite challenging macros, while the other markets performed well.
- Furthering the strategy of increasing the total addressable market in key markets, the acquisition of female personal care brands, Purité de Prôvence and Ôliv, will provide a fillip to the Vietnam business.
3. Dabur India:
- International Business is expected to post double-digit revenue growth during the quarter in constant currency. However, due to currency headwinds in Turkey and Egypt, the reported growth in INR would be impacted.
Business Performance- Margins & Net Profit Update:1. Godrej Consumer Products Limited:
- Due to some stability in key input prices and consumer pricing across key franchises, gross and operating margins are expected to improve both sequentially and year-on-yearly. Because of the lower revenue growth, the company expects to expect modest growth in operating profit.
2. Marico Limited:
- Profits of the company should improve meaningfully, due to Gross Margin recovery and continued marketing investments translated to high single-digit EBITDA growth.
3. Dabur India:
- Dabur India said in an update that gross margins will be marginally better sequentially.
- Also, the adverse currency movements in International Business and inflation will lead to near term impact on the operating margin, which is expected to be lower by 200-250 bps as compared to Q3 FY22.
Summary- Business Performance:
- Among the discussed companies, Dabur India and Godrej Consumer Products are expected to post good Q3 results, while Marico looks to suffer in terms of revenue growth.
Final Outlook:
- Price hikes effected over the past year are expected to drive revenue growth for fast-moving consumer goods (FMCG) companies in Q3FY23.
- Volumes are expected to grow in the low single-digits because of a reduction in grammage, inflation, and weakness in rural demand, a trend that FMCG Companies and analysts highlighted ahead of the result
- In terms of margin improvement:
o Crude prices witnessed a sharp correction.
o The decline in palm oil prices earlier allowed FMCG companies to take price cuts & grammage restoration to pass on the benefit.
o FMCG companies are mainly taking price cuts to perk up volumes in rural regions.
o Imported RMs like palm, crude & related commodities have seen a sharp decline, but Agri commodities like wheat, rice, coffee & milk continue to remain firm.
o Chances of margin improvement sequentially, but on a YoY basis, there could be some pressure.
What Should Investors Do?
In the calendar year 2022, the Nifty FMCG index reached its 52-week high level and generated returns of around 21%. Also, the sector has been witnessing several headwinds like commodity inflation, lower revenue growth, the slowdown in rural areas, lower volume growth, and others. The performance of the Nifty FMCG index in the last 1 year has been majorly dependent on the stock performance of Varun Beverages, ITC, Britannia, HUL, and United Spirits. Here, the recent quarterly results update of Q3FY23 of a few FMCG companies has shown some green shoots for the FMCG quarter in the current quarter as well as for coming quarters.
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