Low FMCG revenue, volume growth seen

Chennai: After a tough September quarter, the December quarter too is expected to remain subdued for FMCG companies, as demand remains soft. Volume growth is expected to be in low-to-mid single digits.

Fast moving consumer goods (FMCG) volumes had hit a two-year low in the September quarter of FY20. The December quarter has not seen any major relief, find sector analysts. According to Emkay Global Financial Services, volume growth will be in low-to-mid-single digits across companies in Q3, similar to Q2.   

Q2 FY20 witnessed rural growth slipping below urban growth, and the trend is likely to continue in Q3 FY20 as well. Impact of floods persisted in the early part of Q3 FY20 with liquidity concerns and weak rural demand, finds Motilal Oswal Financial Services (MOFL).

“If rural growth was 1.25 times that of urban growth in FY19, it has now dropped to 0.7 times,’ said Kaustubh Pawaskar, AVP, Fundamental Research, Sharekhan.

While Emkay expects average revenue growth to be around 6 per cent, Motilal Oswal finds that aggregate sales for Q3 FY20 could likely grow at 5.7 per cent YoY.

MOFL predicts Ebitda growth to drop to 7.5 per cent, the lowest since Q1 FY18. However, Emkay finds that average Ebitda growth could be around 11 per cent against 10 per cent in Q2.

Corporate tax cuts and lower commodity prices will support higher earnings growth. Emkay expects it to be 21 per cent in Q3 and MOFL too finds it be higher at 16.9 per cent.

Both positive and negative trends have impacted profit after tax of FMCG companies.

“The weak demand environment saw a rise in competitive intensity in the form of promotions and price-offs. This means that benefits of low material costs is now not expected to be as high as it would have been in a more favorable operating environment. On the other hand, ad-spends and new launches are expected to remain lower than usual as companies await signs of revival,” said MOFL.