FMCG Sector Braces for Q3 Results: Analysts Weigh In on ITC, HUL, Nestle
7th Jan 2025
Cautious Outlook for FMCG Sector
Analysts on Dalal Street are cautious about the FMCG (fast-moving consumer goods) sector due to dual stress in the form of demand slump and inflationary pressure. The sector already disappointed equity investors in 2024, with the BSE FMCG index gaining just 1.48% compared to the benchmark BSE Sensex's 8.16% rise.
Earnings Downgrade Cycle and Stock Performance
Emkay Global Financial Services believes that the near-term sector outlook remains muted, with weak execution by companies and an unfavourable macro environment. "We expect the earnings downgrade cycle to continue during Q3FY25 results and hence have a bearing on near-term stock performance," the brokerage said. In the BSE FMCG index, shares of HMA Agro Industries, Honasa Consumer, Dhampur Sugar Mills, Uttam Sugar Mills, and Dwarikesh Sugar Industries declined significantly in 2024, while LT Foods, DOMS Industries, Godfrey Phillips India, Gokul Agro Resources, and Manorama Industries advanced.
Profitability Concerns for Major FMCG Players
Emkay Global Financial Services added that ITC, Marico, and Bikaji Foods International are the only players expected to report double-digit YoY revenue growth for the quarter ended December 2024. However, operating profit margin contraction is likely to be accentuated for Honasa, Colgate, Gopal, ITC, and Britannia, with 200-450bps YoY contraction. Earnings are also expected to see a decline YoY, with Emami and Marico the only players likely to post mid-to-high single-digit growth. Nuvama Institutional Equities projects a 6% year-on-year dip in profit after tax of the FMCG sector on 9% year-on-year growth in revenue. HDFC Securities also sees revenue and EBITDA growth of 9% and 1%, respectively, in Q3FY25, but believes that profitability is expected to decline by 6% due to negative operating leverage and gross margin pressures.
Analysts on Dalal Street are cautious about the FMCG (fast-moving consumer goods) sector due to dual stress in the form of demand slump and inflationary pressure. The sector already disappointed equity investors in 2024, with the BSE FMCG index gaining just 1.48% compared to the benchmark BSE Sensex's 8.16% rise.
Earnings Downgrade Cycle and Stock Performance
Emkay Global Financial Services believes that the near-term sector outlook remains muted, with weak execution by companies and an unfavourable macro environment. "We expect the earnings downgrade cycle to continue during Q3FY25 results and hence have a bearing on near-term stock performance," the brokerage said. In the BSE FMCG index, shares of HMA Agro Industries, Honasa Consumer, Dhampur Sugar Mills, Uttam Sugar Mills, and Dwarikesh Sugar Industries declined significantly in 2024, while LT Foods, DOMS Industries, Godfrey Phillips India, Gokul Agro Resources, and Manorama Industries advanced.
Profitability Concerns for Major FMCG Players
Emkay Global Financial Services added that ITC, Marico, and Bikaji Foods International are the only players expected to report double-digit YoY revenue growth for the quarter ended December 2024. However, operating profit margin contraction is likely to be accentuated for Honasa, Colgate, Gopal, ITC, and Britannia, with 200-450bps YoY contraction. Earnings are also expected to see a decline YoY, with Emami and Marico the only players likely to post mid-to-high single-digit growth. Nuvama Institutional Equities projects a 6% year-on-year dip in profit after tax of the FMCG sector on 9% year-on-year growth in revenue. HDFC Securities also sees revenue and EBITDA growth of 9% and 1%, respectively, in Q3FY25, but believes that profitability is expected to decline by 6% due to negative operating leverage and gross margin pressures.