GST impact: FMCG PAT, revenues to slow down over 2% in Q1FY18

Key Highlights

• FMCG companies to report lower revenue, EBITDA and PAT in the first quarter.
• IN Q4FY17, companies reported 7.3% growth in revenues.
• Companies with higher share of wholesale to be more impacted in Q1.

Fast Moving Consumer Goods (FMCG) companies like ITC, HUL, Dabur, Nestle India, Brittania, Colgate, etc will begin announcing their first quarter ended June 30, 2 018 results (Q1FY18) results this month. 

One of the key concerns about the FMCG sector is the implementation of Goods and Services Tax (GST) and the discounts that companies offered in June in order to liquidate stocks before the new tax regime kicked in. 

Destocking was greater in those channels where the price after GST was going to be higher than before and accelerated in the last 10 days of the quarter. While those companies more dependent on wholesale would be more impacted.

In the fourth quarter ending March 31 FY17 revenues from FMCG stood at 7.3% while it is now estimated to be lower at 2.2%, analysts Abneesh Roy, Tanmay Sharma and Alok Shah from Edelweiss research said in a report dated July 6.

“The Edelweiss consumer goods pack’s revenue, EBITDA and PAT growth is likely to slow down to 2.2%, 2.2% and 2.0% YoY (Q4FY17: 7.3%, 8.4%,  13.0%), respectively, in Q1FY18,” the analysts said. 

Not only revenue but profits are also likely to decelerate on the back of the one nation one tax regime called GST. 

“Amidst confusion in terms of rules, input tax credit of inventory, IT software etc., consumer goods companies have seen destocking in trade in the last 8-10 days of June.  The CSD channel, accounting for 4‐5% of overall sales of consumer goods companies, destocked significantly throughout June,” the report said.

Nearly all companies analysed by Edelweiss analysts are estimated to report negative quarter-on-quarter growth in revenues like Asian Paints, Bajaj Corp, Britannia, Colgate, Dabur, Emami, GlaxoSmithKline and Nestle India.

Hindustan Unilever is likely to report 2% Y-o-Y growth in revenues; while ITC will also 5.6% growth and Godrej Consumer is expected to outperform at 7.3% growth.

“Companies with  high proportion of wholesale trade will be impacted more as our channel  checks  indicate  that  quite  a  few  wholesalers  have  still  not  registered  under GST,” the analysts said.

The analysts estimated highest fall in year-on-year revenue by Emami (10%) and Bajaj Corp (7%). These companies have nearly 60% of their business stemming from wholesale, as per a report by Credit Suisse dated 12 June.

There could be some residual impact of destocking in Q2.

Destocking is largely over and with IT software in place for majority of the distributors, business will return to normal in Q2FY18,” the analysts added.