Personal care products may clock single digit declines in Q3 sales despite demonetisation

Among the fast moving consumer goods (FMCG) companies, personal care (PC) products may not be worse off given the demonetisation fiasco.

“We expect all FMCG companies in the PC Universe to report single-digit declines in sales, except ITC (strong cigarette volumes), Nestle (low base) and GCPL (high international share),” analysts from Phillip Capital Naveen Kulkarni, Jubil Jain and Preeyam Tolia said in a report dated January 4.

Single digit earnings before income tax depreciation and amortisation (EBITDA) declines for HUL, Dabur, Emami, and GlaxoSmithLine (GSK) Consumer and flattish EBITDA for Godrej Consumer Products Ltd, Marico, Colgate, and ITC on strong sales growth or margin expansion could be apprehended, the report added.

Analysts from Kotak - Rohit Chordia, Anand Shah and Abhas Gupta said, “…aggregate revenues to decline marginally while EBITDA/PAT is likely to decline 5-6% yoy impacted by demonetization.”

For Hindustan Unilever (HUL), the Kotak analysts said that a 2% decline in domestic FMCG sales growth was expected due to 5% dip in underlying volume growth.

“…we have modelled 1.5% and 3% yoy decline in home care and personal care segment,” the analysts added.

In the case of GSK the analysts said that an 8% decline in domestic business revenues was expected on account of 10% decline in volumes and 2% price/mix-led growth.

Industry experts agreed that Nestle India will clock strong sales growth due to a ‘favourable base’ in Q3 FY16 which was impacted due to the Maggi ban.

Maggi’s ex-portfolio revenues has been estimated to grow 2% yoy down from 6% in FY16 aided by low base and new launches.

However, the Phillip Capital report cited that the third quarter (Q3) would not be so kind to sales of Bajaj Corp and Britania.

“We expect a double-digit decline in EBITDA for Britannia (rising input costs) and Bajaj Corp (higher sales decline,” the analysts said.

The Kotak analysts attributed Bajaj Corp’s decline in revenues to higher ad spends.

“We model 250 bps contraction in EBITDA margin yoy, despite 310 bps expansion in GMs, due to weak leverage and higher A&SP,” the analysts said.

In an earlier report by Zeebiz we said that demonetisation may have impacted advertising revenues by Rs 1,200-1,500 crore in Q3 however certain companies continued to spend on advertisements.

ITC may witness flattish volume growth and 5% price growth in cigarettes, Phillip Capital report said.

The report added that Dabur India may witness fall in domestic volumes 4% while EBITDA may decline marginally as ad spends reduce by 3%.