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Informist, Tuesday, Feb. 25, 2025

 

By Avishek Rakshit

 

KOLKATA – Of the 12 fast-moving consumer goods companies that are part of the Nifty 200, eight met or fared better than analysts' expectations of a 3.1% net profit decline for the sector, while four failed to meet the Street view. On revenue growth, five companies met or exceeded the consensus view for the sector of 10.4% while seven did not meet the expectation.

 

The outperformers on net profit were Britannia Industries Ltd., Colgate-Palmolive (India) Ltd., Dabur India Ltd., Hindustan Unilever Ltd., Marico Ltd., Patanjali Foods Ltd., United Spirits Ltd., and Varun Beverages Ltd. The outperformers on revenue growth were Marico, Patanjali Foods, Tata Consumer Products Ltd., United Spirits, and Varun Beverages.

 

Of the total 12 companies in the sector, five met or exceeded analysts' estimates for each company respectively on net profit. Seven companies did not meet the consensus view and this dragged down the performance of the sector. Eight companies individually met the Street projections on revenue. 

 

On an average, these FMCG companies reported a 2.6?cline in the net profit against the 8.8% profit growth reported by the Nifty 200 companies. On an average, brokerages had predicted the Nifty 200 companies to report a 10% profit growth. On revenue front, the consumer goods sector reported an 8.9% growth as against the 5.5% average revenue growth of the Nifty 200 companies. On an average, brokerages had predicted the Nifty 200 companies to report a 4.8% profit growth.

 

Consumer intelligence firm NielsenIQ, which tracks the organised consumer goods industry, said the FMCG industry achieved a 10.6% on-year value growth during Oct-Dec, and consumption was driven primarily on account of a little over 7% rise in sales volume and a 3.3% price increase.

 

URBAN-RURAL DIVIDE

Companies having more exposure to rural areas benefitted as compared to their peers as consumption slowdown was seen mainly in urban centres, sector analysts said, adding that inflation in food and wages not increasing in tandem with inflation were the key factors dampening demand. 

 

Urban consumption growth in Oct-Dec doubled on a sequential basis and volume growth in rural India increased to 9.9% from 5.7% in the previous quarter, which is two times faster than urban India, NielsenIQ said in its Oct-Dec quarterly snapshot on the FMCG industry. Notably, demand growth in rural areas continued to surpass that in urban areas across most regions of India.

 

However, the festive and wedding season which coincides with the December quarter brought some relief to some of these companies, though some weren't able to reap the benefits. The festive season is undoubtedly the best quarter for the FMCG industry as pent-up demand increases revenue, which usually boosts profit growth. 

 

Food consumption growth rose to 7% in the December quarter from 3.4% in the September quarter, driven by increased sales volume in staples such as edible oils, palm oil, and packaged atta, despite price hikes. Home and personal care categories also saw an uptick, touching 7.3% growth in Oct-Dec, as compared to 5.4% in Jul-Sept, according to NielsenIQ.

 

THE STARS

Three companies outshone others by posting a steep profit growth, sharply higher than any estimate. These three companies – Patanjali Foods, Varun Beverages, and United Spirits – helped the sector post an on-year profit growth and also report results better than the Street's estimate. 

 

Patanjali Foods topped the charts as far as on-year profit growth without one-off gains is concerned. The company reported a 71.3% jump in its net profit, as against the 3.1?cline in sectoral profit growth estimated by analysts. Revenues jumped 15%, mostly on account of a surge in its edible oils business, while foods and home care products reported a revenue decline. 

 

Apart from beating the sector average on profit and revenue growth as well as the Street's estimates on the company, Varun Beverages posted the second-highest net profit growth without exceptional items of over 40%. It also reported market share gains with an over 38% revenue growth – the highest among the 12 FMCG companies in the Nifty 200 index. The growth was primarily on account of a sharp increase in volumes, which increased 38% on year to 215 million cases during Oct-Dec. 

 

United Spirits, which reported an over 36% on-year increase in its net profit and a nearly 15% increase in sales, gained immensely from the new liquor policy of the Andhra Pradesh government, and beat the sector analysts' projections on revenue and profit by a wide margin. The revenue growth came from increased sales volumes, which shot up by 10.2% on year to over 18 million cases as against 16.5 million cases in the year-ago quarter. 

 

THE OUTPERFORMERS

Marico, which was hit hard by rising input costs like its peers, posted the fourth highest on-year net profit growth in the industry at a little over 4%. Raw material costs during the quarter rose 41% on year, which is the highest for the company in 14 quarters. Despite mounting pressures, the company's sales volume in India rose 6% and domestic revenue shot up by 17%, mainly due to price increases. The company also beat the Street's sectoral as well as company projections for net profit. 

 

Britannia Industries, which is on a price increase and market share gain spree, reported the fifth highest net profit growth in the industry, again at a little over 4%, beating the predictions made by the Street. Falling employee benefits expenses, inventory gain, and lower taxes helped Britannia offset rising raw material prices and surpass the Street's projections for Oct-Dec. Raw material costs surged nearly 24% on year – the highest since Jan-Mar of 2022-23 (Apr-Mar)— due to an increase in prices of palm oil, wheat, and other raw materials. However, the company continued to gain market share and posted a value and volume growth of about 6?ch on a year-on-year basis. To a large extent, the company covered the raw material inflation by price increases.

 

Dabur India, which is focussed heavily on rural markets, also reported a net profit growth, although much lower, at nearly 2%, and only marginally ahead of the Street's estimates. Sales of food products rose 30% on year in the December quarter while sales of beverages fell 10% on year. Home and personal care, which contributes a bulk of the domestic business, rose 6% on year. However, sales of the health care vertical, another key contributor, declined 1.3% on year. Dabur gained market share across 95% of its portfolio in India, led by hair oil products, for which the market share grew 150 basis points. The company's total market share in hair oils is now the highest ever at 18%. 

 

Urban-centric Colgate-Palmolive reported an over 2?cline in its net profit, which fell short of the Street's expectations for the company. However, the net profit decline was still better than the 2.6% segmental decline which the Street had projected. Although the company reasoned that a high-base year impacted the profits, sector analysts unanimously cited muted consumer demand and the company's reliance on urban markets, where demand is poor, as the reasons for the lacklustre performance. 

 

The goliath of the sector, Hindustan Unilever, continued to drag down the industry growth. Although the company on paper reported the fourth-highest net profit growth, it was only on account of a one-time gain from the sale of its water purification business. Excluding this gain, the net profit declined over 2% on year and was below the Street's projections for the company. However, it was still an improvement over the 3.1?cline projected by analysts for the sector. Measures like control over advertising expenses, price hikes, introduction of new product packs, and optimal performance of the home care business boosted profit, but revenue growth was muted as was sales volume growth. Most of the profit growth came from price hikes it undertook over the past quarters. 

 

THE UNDERPERFORMERS

The country's largest cigarette company, ITC Ltd., reported a 6% on-year increase in its cigarette sales volume, which together with premiumisation and some price increases, led to an 8% revenue growth from the cigarettes business. The agricultural division, which is into trading and procurement, also posted impressive results. But its consumer goods portfolio proved to be a drag, and the pre-tax profit from this segment tanked nearly 26?spite a 4% sales growth. While price increases helped mitigate some cost pressures and lead to revenue growth, the overall consumption environment remained muted. Effectively, discounting one-time gains, ITC reported a net profit decline of 8.3%, far worse than the 2.6?cline which analysts had predicted for the sector. The company's revenue and profit, however, were more or less in line with the Street's estimates. 

 

The Indian division of the world's largest food company, Nestle India Ltd., also reported a muted earnings performance. It not only missed the Street's estimates but also reported a nearly 9?cline in net profit, three times the decline expected for the sector. To make matters worse for the company, the near 4% top line growth was the slowest for the company since 2015. The company blamed the tepid growth on food inflation and moderation in urban consumption, on which it heavily relies on, for the decline, even as demand has been recovering gradually in rural areas.

 

Godrej Consumer Products Ltd.'s financial position took a hit, both in the domestic market as well as in its major export markets. With a flat volume growth, owing to demand headwinds, revenues in India were up only 4% implying a price increase-led growth. Its revenue from major markets abroad, in Africa, West Asia, and the US, declined 16%, but it was up 9% in Indonesia. Effectively, Godrej Consumer not only missed the Street's estimates, but also reported an over 14?cline in its net profit despite a 4% increase in its revenue.

 

The tea industry has been under stress for some time now. But this is mostly limited to plantation companies which have been facing production and price realisation issues. Tea retailers, on the other hand, have been facing only cost pressures. However, demand headwinds worsened this quarter and Tata Consumer Products Ltd., despite being the second-largest tea retailer in the country, wasn't able to stave off this pressure. The company's tea retail sales volume grew 7% and revenue rose 10%, but despite this, Tata Consumer lost market share on account of increasing competition from local players and from industry major Hindustan Unilever. Cost pressures from tea and coffee procurement led to a 34% surge in raw material costs – the highest since the March quarter of FY21. Including one-time items, the company's net profit growth was flat and in line with the Street estimate, but excluding exceptional items, the net profit was down over 23% - the worst in the FMCG sector in India. 

 

The following table shows the performance of the 12 companies in the FMCG sector vis-a-vis the consensus estimate for each company as well as against the consensus estimate for the FMCG sector and the Nifty 200 index:

 

		Nifty 200 Q3 PAT growth 8.8%	Nifty 200 Q3 PAT growth consensus estimate 10%					Nifty 200 Q3 revenue growth 5.5%	Nifty 200 Q3 revenue growth consenus estimate 4%
Company	PAT beat analysts' estimate	Adjusted PAT growth %	Adjusted PAT growth estimate %	PAT beat sector estimate	PAT beat Nifty 200 estimate		Revenue beat analysts' estimate	Revenue growth %	Revenue growth estimate %	Revenue beat sector estimate	Revenue beat Nifty 200 estimate
Dabur India	Yes	1.59	-1.4	Yes	No		Yes	3.08	3.03	No	No
Godrej Consumer Products	No	-14.27	-9.91	No	No		Yes	2.97	2.35	No	No
Hindustan Unilever	No	-2.24	0.66	Yes	No		No	1.45	2.77	No	No
ITC	No	-8.29	-7.49	No	No		No	8.65	16.14	No	Yes
Marico	No	4.18	4.26	Yes	No		Yes	15.36	13.32	Yes	Yes
Nestle India	No	-8.75	-6.97	No	No		No	3.9	4.55	No	No
Patanjali Foods	Yes	71.3	48.79	Yes	Yes		Yes	15.07	14.65	Yes	Yes
Tata Consumer Products	No	-23.05	-11.91	No	No		Yes	16.82	15.77	Yes	Yes
United Spirits	Yes	55.04	15.1	Yes	Yes		Yes	14.82	12.92	Yes	Yes
Varun Beverages	Yes	40.29	37.68	Yes	Yes		Yes	38.28	34.3	Yes	Yes

 

 

The following table shows the profit margins of the 12 FMCG companies that are a part of the Nifty 200:

 

Company	PAT Margin for Dec-24	PAT Margin for Dec-23	PAT Margin for Sept-24
FMCG sector	16.25%	18.17%	16.46%
Nifty 200	11.87%	11.51%	11.37%
Britannia Industries	12.67%	13.14%	11.39%
Colgate-Palmolive (India)	22.08%	23.65%	24.40%
Dabur India Ltd	15.57%	15.80%	14.03%
Godrej Consumer Products	13.38%	16.07%	13.56%
Hindustan Unilever	16.17%	16.78%	16.95%
ITC	29.97%	35.50%	27.23%
Marico	14.28%	15.81%	15.88%
Nestle India	14.56%	16.58%	13.63%
Patanjali Foods	4.07%	2.74%	3.79%
Tata Consumer Products	6.41%	9.74%	9.29%
United Spirits	15.68%	11.61%	11.78%
Varun Beverages	5.02%	4.95%	12.90%

 

 

Edited by Tanima Banerjee

 

 

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