Fast-moving consumer goods companies expect easing commodity inflation to boost consumption
Financial services firm Prabhudas Lilladher said domestic demand is showing green shoots but untimely rains and changing weather patterns may delay rural recovery.
Leading fast-moving consumer goods (FMCG) companies such as Dabur and Marico are of the view that the easing of commodity inflation is favourable for the overall consumption trend for FMCG products, especially in rural markets, which have remained muted for the last five to six quarters.
Godrej Consumer Products Ltd (GCPL) also expects margins to show an improvement in the March quarter.
"During the quarter, the sector continued to witness gradual recovery with year-on-year volume trends improving in each quarter. While urban and premium categories were stable, easing of broader commodity inflation bodes well for overall consumption trends, especially in rural markets," Marico said.
Among key inputs, copra prices remained steady in a favourable zone and edible oils resumed a downtrend while crude derivatives remained firm.
"... Gross margin is expected to expand and drive reasonable growth in operating profit on a year-on-year basis," Marico, which owns brands such as Saffola, Parachute, Hair & Care and Nihar Naturals, said.
According to Dabur, the demand trajectory across both urban and rural markets in India has shown a slight improvement sequentially, although it falls short of a full recovery.
"While urban markets have returned to positive volume growth, rural markets still remain muted," the homegrown FMCG major, which owns power brands such as Dabur Chyawanprash, Dabur Honey and R?al, said.
However, it also added that despite "near-term consumption pressure", there are some "green shoots which are emerging such as moderating inflation, improving consumer confidence and increase in government spending".
Inflation continued to cool off for most of the commodities and gross margins for its India business are expected to show an improvement.
On the revenue front, Dabur's India and international businesses expect to report mid-single digit growth in the March quarter.
GCPL said in the Indian markets, consumer demand trends remained steady through the quarter, with the FMCG sector expected to witness a gradual recovery in growth rates.
The company, which owns brands such as Godrej No1, Hits and GoodKnight, said the performance of its India business has exceeded expectations, especially on the volume front.
"We expect to deliver double-digit volume and value growth. Our domestic branded business growth was very strong registering volume and value growth in teens. This is in line with our strategy of volume-driven category development," it said.
Overall, the growth was broad-based and led by double-digit volume and value growth in both Home Care and Personal Care, GCPL added.
GCPL also expects to deliver "double-digit growth" on a consolidated level as its Indonesia business, the second largest after India has started to see a gradual recovery in performance.
"The quality of our profits should see improvement, led by gross margin recovery and continued marketing investments translating to strong double-digit EBITDA growth," GCPL said.
Marico said that while a more visible and sustained recovery in FMCG demand is anticipated in the coming quarters based on a variety of improving macro indicators, a healthy monsoon season will be critical for the same to materialise.
According to Dabur, the environment has been challenging but the fundamentals of the business continue to be resilient.
"We will continue to invest strongly behind power brands, innovation, distribution expansion and a robust back end which will enable us to increase our market shares and achieve profitable and sustainable growth," it said.
Financial services firm Prabhudas Lilladher said domestic demand is showing green shoots but untimely rains and changing weather patterns may delay rural recovery.
"Broader margins have bottomed out but delayed recovery can result in back-ended returns," Amnish Aggarwal Head of Research at Prabhudas Lilladher, said.
Nuvama Group Executive Director, Institutional Equities Abneesh Roy said margin profiles of some consumer companies have started improving year-on-year.
"With gross margins expanding, companies have begun to ramp up ad spends. Urban shall continue to outperform rural. Accordingly, players with greater exposure to rural are likely to turn in a muted performance. International business shall perform well in CC terms," Roy said.
With PTI Inputs
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10:53 AM IST