FMCG shares take a beating after Q3 business update points to flat sales

Volume projections too, failed to impress. Godrej Consumer Products’ volumes are set to grow in high-single digits in Q3FY24, while Marico’s volumes are expected to grow in low-single digits.

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Fast Moving Consumer Goods companies are expected to report flat sales and weak volume growth for the October-to-December quarter, according to the Q3 update shared by consumer goods majors such as Marico, Dabur India, and Godrej Consumer Products.

FMCG stocks fell, with Marico trading down 4.2 percent, Dabur India down 2.23  percent, Godrej Consumer down 3.79 percent. FMCG giant HUL, which doesn’t share the quarterly business update, also fell 1.91 percent.

Brokerage firms believe that volume recovery in India has been weak however, low raw material costs may support gross margins.

Dabur India said it expects to deliver a mid-to-single-digit revenue growth in Q3FY24, while Godrej Consumer Products is expected to report a flat revenue growth in the same period. Marico’s revenue growth is estimated to decline in low-single digits in the October-to-December quarter.

Volume projections too, failed to impress. Godrej Consumer Products’ volumes are set to grow in high-single digits in Q3FY24, while Marico’s volumes are expected to grow in low-single digits.

Marico and Dabur India have flagged the continuing weakness in rural recovery in the third quarter. The demand growth continues to lag behind the urban demand, said the companies. “During the quarter, the FMCG sector exhibited similar demand trends on a sequential basis, with urban markets staying steady and rural offering little to cheer,” said Marico in its Q2FY24 update.

CLSA has a ‘sell’ call on Godrej Consumer Products at a share price of Rs 936 per share. It said that the company reported flat sales growth at a consolidated level and organic sales growth saw a low-digit decline at a consolidated level.

Dabur India however, said that it expects consumption recovery in urban and rural markets in India due to improving macro indicators, increase in government expenditure and positive consumer sentiment.

Motilal Oswal said that FMCG companies may face challenges with moderating price growth, subdued rural demand, and intensified competition. Plus resilient urban demand and margin expansion are expected to continue. “Our consumer universe is likely to report a sales, EBITDA, and net profit growth of 7 percent, 11 percent, and 10 percent growth due to softening demand trends in Q3FY24,” said the brokerage firm.

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