Fast-moving consumer goods companies had witnessed muted growth in Oct-Dec due to rural slowdown and liquidity issues at the wholesale level as in the preceding quarter, ICICI Securities said in a report.
“Companies are expected to report slower volume growth in the range of 4-6% YoY on a high base whereby sales are expected to grow by 6.3% YoY,” the brokerage said.
Major companies in the sector have reported single-digit growth in sales volume over the past few quarters because of a slowdown in the economy and distress in the rural markets.
According to the brokerage, the impact of weak rural growth would be felt the most by Hindustan Unilever and Marico, as rural sales contribute a sizeable portion of their overall sales, in addition, to shift towards lower-priced alternatives.
While presenting the Jul-Sep results, the management of HUL remained cautious about the near-term outlook due to the slowdown in rural demand.
Marico recently said the overall consumption trends during the December quarter did not hold hopes of a revival in sentiment. On Monday, Godrej Consumer Products said the demand from the domestic market remains a challenge as the consumer goods sector has been struggling with low growth over the past few quarters, primarily due to a slowdown in general consumption.
The companies’ concerns reflect the mood of the sector, which was hoping for a turnaround in sentiment following a good monsoon and the announcement of government measures.
On the other hand, Nestle India is expected to witness strong on year sales growth of 9.5% driven by broad-based growth across categories and due to lower salience of rural sales, the brokerage said.
ICICI Securities expects Dabur is expected to post 6% on year volume growth on the back of good sales growth driven by promotional offers in Diwali period in October.
“ITC is expected to post 4% YoY volume growth in cigarettes driven by a stable tax environment. Though growth from its FMCG segment would be lower in line with other consumer companies’ growth, we expect ITC to post 6% YoY sales growth on the back of good growth from cigarettes & paper segments,” it said.