Q4 earnings preview: Will FMCG firms be able to beat virus blues?

FMCG companies are expected to report decent growth in March quarter revenue and profit despite uncertainty over the coronavirus pandemic as most of they have managed to ensure business continuity via e-commerce players.

However, sagging rural demand is likely to trim growth and brokerages are largely projecting single-digit topline expansion for the Indian consumer universe.

“We expect companies under our coverage to register 5.5 per cent growth in revenue, 10.9 per cent expansion in Ebitda and 10 per cent rise in PAT in March quarter. Given the slower recovery in the economy, urban demand is likely to remain stable led by alternate channels such as modern trade and e-commerce. However, sagging rural demand and liquidity squeeze will continue to have an impact,” Centrum Broking said in a note.

Consumer stocks have fared comparatively better than others in 2020 till now, with some of them even trading near all-time highs. Nifty FMCG Index is down just 5.4 per cent against about 26 per cent year-to-date decline in Nifty and Sensex.

HUL is the biggest gainer in the pack, up 21 per cent, followed by Nestle India which has risen 12 per cent. Dabur has edged higher by 4.6 per cent.

HDFC Securities said key things to watch for HUL and Nestle India will be any improvement in rural demand while for Dabut it will be new launches and any change in consumer preference towards Ayurvedic products. The brokerage has weak earnings outlook for ITC, Nestle India and Dabur while average estimates for HUL.

Dolat Capital expects moderate growth for FMCG companies. Revenue growth in the consumer discretionary portfolio is expected to remain under pressure.

“Operating margin for most FMCG companies is likely to remain strong, especially for those catering to packaged foods and essential products categories,” it said in a note.

FMCG firms manufacture ‘essential’ items and hence have not been barred from conducting businesses. Nonetheless, there would be some impact on Q4 numbers due to the lockdown.

Panic buying ahead of the lockdown and a surge in demand for personal hygiene products due to coronavirus may however cushion the negative impact to some extent.

“Consumer staples companies will face a limited impact compared with those manufacturing non-essentials due to higher demand for personal hygiene products such as sanitisers, soaps, hand wash and homecare products. Also, there was panic buying of essential products such as pulses, detergents, biscuits, packaged foods and dishwashing products, which should offer some cushion,” Sharekhan said in a note.

Companies like Hindustan Unilever, Britannia Industries, Colgate-Palmolive India and Dabur India will clock 2-4% revenue growth (volume growth to be in low single digit) year-on-year, it said.

Centrum said the pandemic would have moderate impact on consumer companies due to a change in consumer behaviour, increased demand for health, hygiene and wellness products, and preference for value-for-money products, Centrum said.