The fast-moving consumer goods (FMCG) sector is likely to post modest single-digit volume growth in the second quarter, per Street estimates.

However, a reduction in material costs and effective input cost management by companies could help expand the EBITDA (earnings before interest, tax, depreciation, and amortisation) margins.

The demand impact from El-Nino and the upcoming festive season will be closely monitored by experts.

Q2 business updates so far

Marico expects a decline in domestic revenues, mainly due to lower edible oil prices. The company achieved single-digit volume growth, while EBITDA grew in double-digits, the FMCG major said in an update on October 4.

Godrej Consumer Products achieved mid-single-digit volume growth and an expansion in EBITDA margins.

"In India, we witnessed weak macros and adverse weather conditions during the quarter. Despite the tough operating environment, our organic business delivered a steady performance with mid-single-digit volume growth," GCPL said in a regulatory filing on October 5.

Dabur is also expected to register mid-to-high single-digit growth in the second quarter of the current financial year (Q2FY24), helped by a gradual recovery in consumption of consumer goods. A significant portion of Dabur's gross margin expansion will be channelled into boosting advertising and promotion (A&P) spends, the company said in a filing on October 6.

In the discretionary segment of the portfolio, there has been a notable improvement. Brands like Titan, Avenue Supermarts, Kalyan Jewellers, and Nykaa have all performed exceptionally well. Titan, in particular, reported a 19% growth in jewellery revenue, with CaratLane contributing significantly with a 45% growth.

Read Here | FMCG sales down 2.3% in Q2 amid food inflation, erratic monsoon: Bizom data

Kalyan Jewellers' domestic business experienced a growth rate of 32%, which had a positive impact on other jewellery stocks as well. DMart saw a standalone revenue growth of approximately 18.5%, and Nykaa's fashion business expanded in the 30s.

What the Street estimates on Q2 earnings

Companies like HUL, Asian Paints, and Britannia are expected to report revenue growth in the range of 3-4%. However, they are projected to achieve double-digit or mid-teens EBITDA growth.

Asian Paints is expected to lead with an impressive 45% growth in EBITDA. In terms of revenue growth, only Tata Consumer and Nestle are expected to report near double-digit increases, along with mid-teens EBITDA growth.

Asian Paints stands out due to a sharp correction in crude oil prices and a low comparative base, driving EBITDA growth to over 45%. It's also important to closely monitor the results of companies like Colgate, Jyothy Labs, Emami, and Bajaj Consumer, as their outcomes may offer valuable insights into strategic changes within these organizations.

Some key things to watch out for

It's crucial to pay attention to any commentary on shifts in demand patterns, competitive pressures, and the ever-evolving input cost environment.

While FMCG stocks traditionally trade at a premium compared to the market, it's worth noting that most of these stocks are currently trading at a slight premium or in line with their 10-year average valuations.

Read Here | Adani Wilmar Q2 Update: FMCG company sees strong volume growth on rural boost, but sales value drops

In an interview with CNBC-TV18, Abneesh Roy, Executive Director at Nuvama Institutional Equities emphasised that Nestle, Tata Consumer, and Varun Beverages are expected to shine in the FMCG sector for the upcoming quarter.

Roy expressed optimism regarding Britannia's performance in the third quarter. He anticipates that Q3 will surpass the previous quarter's results,

Also Read | Elara Capital expects over 20% growth in EBITDA for FMCG universe

(Edited by : Shweta Mungre)

First Published:Oct 11, 2023 2:23 PM IST