Fast moving consumer goods seem to have hit a speed breaker as consumers keep a check on spending amid the economic slowdown and high prices.
With cost of raw materials rising sharply, adding pressure on gross margins, FMCG companies are likely to report lower sales in the January-March quarter, analysts say.
“Volume growth is likely to remain muted and lower than the growth delivered in the previous quarters. The premiumisation trend has slowed down in most segments over the last two quarters,” said Mehernosh Panthaki, analyst at HDFC Securities.
Moreover, despite good monsoons, rural demand seems to be displaying signs of slowdown.
Hindustan Unilever, India’s largest consumer goods company, has been warning for a couple of quarters that urban consumers have been spending less.
Now, according to some estimates, rural market growth has slowed down to 12-14%, compared with around 20% last year.
This is likely to be be reflected in quarterly results. HUL is likely to report a volume growth of around 4%, Emami about 2-3%, and Marico and Britannia around 4% growth in volumes, said analysts.
ITC’s cigarettes sales may dip by 2%, but its earnings from other FMCG businesses are likely to be stronger, they said.
Overall, revenue growth of companies is likely to be around 11-12%, a slight gain from 9-11% of the past couple of quarters. Profit growth will also likely be around 11-12%, analysts said.
“Despite selective price increases, gross margin for most companies would be negatively affected,” said Aashish Upganlawar, analyst at Elara Securities.
Companies such as Asian Paints, GSK Consumer and Nestle could see gross margin dip more than 100 basis points, according to Rohit Chordia of Kotak Institutional Equities.