With the fiscal third quarter earnings season now over, here is a look at how the FMCG industry performed during the last quarter. Elara Securities said that Nifty FMCG has underperformed Nifty 50 by 2 per cent (up at 10 per cent CAGR) since FY19. This, it added, has come after a strong 8 per cent outperformance (versus Nifty 50) in the prior nine years through FY10-19.
“While in Phase I (FY11-15), growth was close to mid-teens with modest margin expansion for large companies, Phase II (FY16-20) witnessed significant margin expansion even as revenue grew in mid-single digit. Holding on to benefit from the cyclical uptrend in revenue growth as also consistent margin expansion has been the investment strategy as regards FMCG plays. However, Phase III (FY21-24) has been marked by lower revenue growth with no margin expansion. So, we prefer plays with better revenue growth and stable EBITDA margin in FY26E versus FY24,” Elara Securities said.
NielsenIQ maintained that the FMCG industry grew by 10.6 per cent in terms of value in the third quarter compared to the year-ago period on the back of 7.1 per cent rise in volume and 3.3 per cent increase in prices.
Acquisitions for growth
In the next phase, Elara Securities said, FMCG players will be forced to go for more acquisitions and scale-up adjacent portfolios. Increasing competition with the emergence of alternate distribution channels and new layers – D2C and regional, per the brokerage firm, would keep a check on margins. While the tax relief to consumers announced in the Union Budget 2025 would increase disposable incomes, it would not substantially benefit FMCG companies and should aid a reversal of the downtrading trend.
Revenue growth challenges
The past two quarters witnessed FMCG sales remaining subdued even as rural demand has reported a gradual recovery, led by normal monsoons and a lower base – FY24 rural volumes grew by 6 per cent. Urban demand, meanwhile, is decelerating with reducing disposable incomes and higher base – FY24 urban volumes grew by 8 per cent.
Per the analysis report by Elara Securities, key highlights from Q3FY25 management commentaries were consumers downtrading to smaller packs in the premium segments and capping of margin expansion in the medium term (maintaining margins being the best case).
EBITDA margin hit by higher input cost
In Q3FY25, Elara FMCG universe reported a revenue and EBITDA growth of 7.7 per cent and 1.5 per cent, respectively YoY. Revenue growth was in double-digits for Varun Beverages, Tata Consumer Products, Marico and Mrs Bectors Food Specialities. Among others, Hindustan Unilever, Nestle India, Dabur India, Godrej Consumer Products and Colgate Palmolive witnessed subdued revenue growth in the quarter. While EBITDA margin was largely hit across companies, HUL, Dabur, Varun Beverages and Emami witnessed very little or no impact.
“With challenges in EBIDTA margin expansion persisting for most companies, we prefer plays with revenue growth ahead of Elara FMCG universe (on FY26). We prefer Tata Consumer Products and Marico within large-caps and Mrs Bectors Food Specialities within mid-caps given better revenue predictability,” Elara Securities said.
Change in estimates and recommendation by Elara Securities for FMCG companies
HUL: Post Q3 results, Elara said, “we have cut FY25E/26E/27E earnings estimates by 2%/5.8%/5.4% to factor in lower sales growth and trimmed EBITDA margin. HUL has lowered its outlook on consumption trends in Q3 to moderate from stable in Q2.”
Marico: “We have cut our FY26E/FY27E earnings marginally by 1-2 per cent to factor in lower margin,” Elara Securities said.
Dabur: Elara Securities said, “We have cut our earnings estimates by 3.2%/4.1%/5.6% for FY25E/26E/27E, to factor in lower revenue and margin estimates.”
Colgate: Elara Securities has cut earnings estimates by 3.4% and 5.6% for FY26E and FY27E respectively, due to lower revenue growth and margin. Given the muted revenue and EBITDA CAGRs of 7.6 per cent and 6.3 per cent respectively through FY24-27E, the brokerage firm has downgraded Colgate to Reduce from Accumulate.
Nestle: Post Q3 results, Elara Securities said, “We have cut our FY26E and FY27E earnings estimates by 6.8 per cent and 7.7 per cent to factor in lower revenue growth and EBITDA margin.”
Godrej Consumer Products: Elara Securities has cut our EPS by 1.7%/5.2%/3.8% for FY25E, FY26E and FY27E, due to the lower-than-expected margin.
Britannia: Post Q3 results, Elara Securities cut its earnings by 2.7% for FY25E, 2.0% for FY26E and 5.3% for FY27E to factor in lower revenue and margin. “We maintained Accumulate, given a 13%+ correction in the stock price in the past three months,” it said.
Tata Consumer Products: “Post Q3 results, we have broadly maintained our estimates, with just 1 per cent cut in EPS estimate each for FY26E and FY27E, due to lower margin. We maintained Accumulate with SoTP-TP pared to Rs 1,060 from Rs 1,150 as we assign India business 50x (unchanged) FY27E P/E with Starbucks JV valued at Rs 30 per share (from Rs 100) due to slower SSSG and store addition,” the brokerage firm stated.
Varun Beverages: Post Q3 results, Elara Securities cut earnings estimates by 2.5%/7.8% for CY25E/CY26E respectively due to lower revenue and margins.
