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<\/p>\nFast moving consumer goods (FMCG) companies are expected to see muted topline growth, with uneven spread of the monsoon impacting demand.<\/p>\n
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Rural demand recovery, too, remains elusive in the July-September quarter.<\/p>\n
Brokerages expect volumes to remain steady in the quarter on a sequential basis.<\/p>\n
“On rural demand, we believe that the overall recovery, although not sharp, is witnessing some signs of slow revival,” brokerage house Nirmal Bang said in its preview report on the sector.<\/p>\n
In its pre-quarter commentary, Marico said demand trends in the September quarter were largely similar to those in the preceding quarter.<\/p>\n
Rising food prices and below-normal rainfall distribution in some regions seems to have delayed the expectation of rural demand recovery.<\/p>\n
Godrej Consumer Products also said in its quarterly update that it witnessed weak macros and adverse weather conditions during the quarter.<\/p>\n
Another reason for weak demand witnessed in the quarter was the festival season extending to the third quarter this year, Elara Capital said in its report.<\/p>\n
The brokerage also added: “Although the southwest monsoon in rural India was for the most time normal, its uneven distribution over time and regions may impact agricultural income and consumption.<\/p>\n
“Differences in monsoon patterns could impact an already weak recovery in rural demand.”<\/p>\n
Margins, however, are expected to improve on a year-on-year basis.<\/p>\n
“Q2FY24 will witness significant Y-o-Y gross margin expansion for several companies but rising ad spends (off a low base), significantly lower realisation growth versus preceding quarters, and persistently tepid volume growth mean that Y-o-Y growth at Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin level will not be material for most players,” Nirmal Bang said in its report.<\/p>\n
The brokerage also expects FMCG companies it tracks to clock revenue growth of 5.2 per cent compared to last year, which it says is muted.<\/p>\n
IIFL Securities also noted in its preview, “Aggregate Ebitda growth is expected at 11.2 per cent Y-o-Y, while aggregate Ebitda margin (ex-ITC) would expand 118 bps (basis points) Y-o-Y, largely due to gross margin expansion.”<\/p>\n
It said prices of commodities such as crude oil, edible oils and packaging materials have fallen Y-o-Y, and added that commodities like wheat and sugar have been witnessing inflation Q-o-Q.<\/p>\n
The brokerage also expects aggregate ad spends as a percentage of sales would go up by 180 basis point Y-o-Y and by 10 bps sequentially.<\/p>\n
Brokerages said that the key monitors for this quarter are effects of late monsoon recovery on rural income and its impact on rural demand with expectations of festive season demand.<\/p>\n