Even though the fast-moving consumer goods (FMCG) sector has been under pressure for the whole of 2018, it is expected that volume will grow in the quarter ending in March 2023. According to an analysis by ICICI Direct Research, rural demand is still weak compared to demand in cities.
According to the analyst study, a drop in the cost of commodities and a drop in prices by businesses should lead to a rise in volume in the fourth quarter of fiscal year 23 (Q4 FY23). Demand in rural areas hasn’t been as high as it has been in cities.
“We expect our FMCG coverage universe to bring in 9.8% more money in Q4 FY23, thanks to a mix of more sales and higher prices. HUL’s price cuts in the beauty and personal care (BPC) sector have already started to help boost sales.
The survey also found that the home care market has been growing faster over the past year, mostly because people are more mobile now that Covid is gone. According to ICICI Direct Research, the drop in commodity prices will make the gross margins of FMCG companies bigger. Compared to the last quarter, the average price of palm oil, crude oil, and coconut oil has gone down by 35%, 16.1%, and 12.7%, respectively. Wheat prices have gone down to $21 per kilogramme from their peak of $30 per kilogramme in December 2022. But the ICICI Securities study pointed out that milk prices “have not only stayed the same, but have also gone up a little bit in Q4.”
“We think that most FMCG companies will spend less on advertising in Q4 FY23, which will help their operating margins. The statement went on to say that our coverage universe is expected to improve by 90 basis points in Q4, which will likely lead to a 12.6% rise in net profit.
In its report, it said that it expected HUL’s sales to grow by 15.4%, thanks to a 6% increase in volume and a 9% increase in prices. It also said that it expected Nestlé’s sales to grow by 12.8% in the fourth quarter, thanks to the noodles and chocolate categories.
The research shows that the ITC (FMCG) industry will grow by 19.1%, with higher growth in the food, stationary, and discretionary segments. Tata Consumer expects its salt business in India to grow by a lot. This is mainly because prices went up last year because it costs more money to make salt, which is why prices went up.
In a recent BSE filing, Dabur India also said that the demand trend in both cities and rural areas improved over time in the March quarter, but it wasn’t enough to call it a full recovery. Dabur Major says that rural markets are still pretty quiet, even though volume growth has returned to urban markets. Prices were the main reason Dabur’s sales went up by 5.4% during the quarter. This is likely to be a disaster. Even though demand in cities got better during the quarter, it stayed low in the country. Sales are expected to go up by 5.6% in India, with double-digit growth in the drinks category. In the fourth quarter, we expect the operating margin to drop by 213 bps, to 15.9%. ICICI Direct says that the adjusted net profit will drop by 10.9% to 338.1 crore.
Marico Ltd.’s report said that the company’s consolidated revenue for the March quarter would be in the low single digits compared to the same time last year. This was due to a small recovery and steady volume trends in the urban and premium categories. The brokerage thinks that Nestle India’s operating profit will go up by 3.9% and have an operating margin of 21.5%. It thinks that the net profit will go up by 7.7% to 640.3 crore rupees.
While ITC expects its gross margin to go up by 340 basis points and its operational margins to go up by the same amount to 35.3%, HUL’s operational profit is expected to go up by 14.8% to Rs 3723.8 crore, while its operating margin will go down by 24 basis points to 24.4%. Its net profit is expected to go up by 17.2% to Rs 4911.8 crore. The net profit is expected to go up by 8.3%, to Rs. 2519.1 crore.