In a recent round of Q3 business updates, major Fast Moving Consumer Goods (FMCG) companies, including Marico, Dabur India, and Godrej Consumer Products, have signaled an anticipated slowdown in sales and lackluster volume growth for the October-to-December quarter.
As a result, FMCG stocks witnessed a decline, with Marico trading down 4.2 percent, Dabur India down 2.23 percent, and Godrej Consumer down 3.79 percent. Even FMCG giant HUL, though not sharing a quarterly business update, experienced a fall of 1.91 percent.
Analysts suggest that the weak volume recovery in India is offset by low raw material costs, which may provide support to gross margins.
Dabur India has projected a mid-to-single-digit revenue growth for Q3FY24, while Godrej Consumer Products anticipates reporting flat revenue growth for the same period. Marico, on the other hand, expects a decline in low-single-digit revenue growth in the October-to-December quarter.
However, volume projections have failed to impress, with Godrej Consumer Products estimating volumes to grow in high-single digits for Q3FY24, while Marico forecasts growth in low-single digits.
Marico and Dabur India have highlighted the ongoing weakness in rural recovery during the third quarter. The demand growth in rural areas continues to lag behind urban demand, as mentioned by the companies. In its Q2FY24 update, Marico stated, “During the quarter, the FMCG sector exhibited similar demand trends on a sequential basis, with urban markets staying steady and rural offering little to cheer.”
Brokerage firm CLSA has issued a ‘sell’ call on Godrej Consumer Products, citing flat sales growth at a consolidated level and a low-digit decline in organic sales growth at a consolidated level.
While FMCG companies may face challenges such as moderating price growth, subdued rural demand, and intensified competition, Motilal Oswal expects resilient urban demand and margin expansion to continue. The brokerage firm predicts a 7 percent sales growth, 11 percent EBITDA growth, and a 10 percent net profit growth for its consumer universe due to softening demand trends in Q3FY24.
