FMCG stocks falter as Street cautious about growth prospects

So far this year, Nifty FMCG index has declined over 5 percent, as against 4 percent rise in the benchmark Nifty 50 index

FMCG stocks took a beating and were one of the worst performers on April 9, a day when benchmark indices hit new highs continuing their record run.

Hindustan Unilever, Colgate, Marico, UBL, Tata Consumer, Godrej Consumer Products and Britannia declined up to 2 percent against a 0.4 percent rise in the 50-stock Nifty index.

The Street turned cautious after analysts said that the fourth quarter would be a dull one for the FMCG firms due to sluggish rural growth, delayed winter, and heightened competition.

Another weak quarter?

Analysts at Elara Capital expect the FMCG sector to deliver single-digit value and volume growth in the March quarter.

"We expect our FMCG universe to report revenue and volume growth of 2.8 percent year-on-year (YoY) and 3.6 percent YoY, respectively in Q4FY24," they said in a preview note.

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Regional firms operating in biscuits and laundry segments are challenging larger firms due to favourable commodity prices, the brokerage firm said.

"This fierce competition is dragging companies such as Hindustan Unilever and Britannia Industries," Elara Capital analysts said.

Analysts at Phillip Capital expects most companies to report improved margins on an annual basis amid benign input costs. However, they expect margin expansion to moderate sequentially.

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"Even though gross margins are improving, not all of this benefit will translate into higher earnings before interest, taxes, depreciation, and amortization (EBITDA). This is because consumer companies are planning to invest more in advertising and promotion to boost sales volumes," they added.

The brokerage expects HUL, Marico, Godrej Consumer, and Colgate to see major gross margin gains in the March quarter.

Market experts said rural demand recovery was a must for FMCG sector's growth. "Reviving rural demand is crucial for the FMCG sector, with companies pinning hopes on a favourable monsoon, which could stimulate the rural economy," analysts at Elara Capital said.

So far this year, the Nifty FMCG index has declined more than 5 percent against a 4 percent rise in the Nifty.

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