What To Expect From Earnings Of Consumer Goods Makers

Consumer goods makers are expected to report double-digit volume growth in the quarter ended September on improving rural demand.

Fast-moving consumer goods companies started seeing rural growth outpace urban growth since the beginning of 2018, Motilal Oswal said in its second-quarter preview. Rural consumption recovery is expected to continue with consumer staples likely to post the fifth straight quarter of double-digit profit growth, it said.

In the year ago-period, companies were transitioning to the goods and services tax as dealers started restocking after paring inventory in the run-up to the rollout in July. So, numbers for the three months ended September won’t be aided by a favourable low-base impact as much as in the preceding two quarters. Hindustan Unilever Ltd., the nation’s largest FMCG company, will be the first large consumer goods maker to report earnings tomorrow.

There are visible signs of growth, said Dhairyashil Patil, national president of All India Consumer Products Distributors' Federation. Yet, a strong demand will emerge only post Oct. 15 as retailers will start stocking up ahead of Diwali, he said.

Jefferies is still cautious though. Demand has recovered since the 2016 trough due to rising GDP growth, improving rural demand and a favourable base after demonetisation- and GST-led disruptions, it said. But it has only improved marginally and “we believe the pace of recovery is muted”.

Volume growth in the quarter is expected to be a tad lower than the revenue growth. That’s because they had reported a higher volume growth last year as dealers restocked after the GST rollout and also due to price hikes taken during the quarter which will cause revenue growth to be higher, said Gautam Duggad, head of research at Motilal Oswal Financial Services Ltd.

Nielsen India had earlier said that it expects the FMCG industry to grow at 12-13 percent in July-December—higher than the growth of 11 percent in the first half of 2018.

Key Concerns

• Costs for some companies may have increased. That’s because oil prices rose 7 percent during the quarter and some consumer goods makers use crude derivatives as raw materials.
• Kerala floods may also have an impact on the earnings of some FMCG companies, according to the Motilal Oswal report.
• Lower demand from Canteen Store Department, the brokerage said.