With the fourth quarter earnings season almost done, fast moving consumer goods (FMCG) companies showcased mixed performance in terms of sales growth and margin expansion. While many like Nestle, Marico, Tata Consumer, Britannia, Bajaj Consumer delivered strong results beating analysts’ estimates, others like Hindustan Unilever, Dabur missed expectations. Overall, the trend showed that the FMCG companies are looking at faster recovery in margins with the prices of raw materials easing, however volumes are improving at a slower pace due to weak demand.
Besides, the fiscal fourth quarter also witnessed another trend – merger and acquisitions in play with Godrej Consumer acquiring Raymond’s consumer business including Park Avenue; Nestle, HUL, Tata, ITC are among few companies in the race to acquire Ching’s; Reliance Consumer Products has acquired and relaunched Campa Cola, among many of its recent acquisitions; ITC Limited announced its plans to acquire D2C health food brand Yoga Bar; Dabur acquired Badshah Masala last year; Tata Consumer Products too was in talks to acquire Bisleri, which later fell through.
FMCG firms’ performance in Q4FY23
HUL: Hindustan Unilever reported its fiscal fourth quarter net profit at Rs 2,561 crore, up 8.5% on-year. The FMCG major posted a revenue of Rs 15,215 crore for the quarter. “Major crude and Palm oil related commodities have come down significantly in the last six to eight months, which has resulted in sequential improvement in margins for the company. However, the extent of improvement is below our estimate. We believe the company is passing on the benefit of low commodity prices in terms of price cuts or grammage increase aggressively to perk up volumes. Volume growth of 5 per cent in FY23 remains at lower end despite low base. We remain cautious on growth outlook as well as possibility on margin expansion with high competitive activity,” said ICICI Securities.
Nestle: Nestle India’s March quarter net profit jumped 24 per cent on-year to Rs 736.6 crore, beating analyst estimates, as revenue grew beyond expectations too. “Nestle’s 1QCY23 earnings surprised positively, led by strong revenue performance. However, the margin saw a marginal miss. Cost control protected the EBITDA margin, which was down 20 bps YoY to 23.3 per cent. Nestle continues to focus on distribution strengthening, category expansion and capacity building. We remain positive on OOH products and sustain growth for in-home products,” said HDFC Securities.
Marico: Marico posted its fiscal fourth quarter net profit at Rs 305 crore, up 18.7 per cent on-year from Rs 257 crore in the same quarter last year, beating estimates. Marico posted 3.7 per cent sales growth and domestic volumes were up 5 per cent. “Foods business portfolio has grown from Rs 170 crore to Rs 600 crore in the last three years. It is likely to grow to Rs 850 crore by FY24. Though market share gains in hair oils have slowed down in the last few years, stable pricing brought back volume growth in Parachute coconut oil. VAHO is likely to grow well with rural demand recovery. With a significant decline in vegetable oil prices, Saffola volumes are likely to grow in mid-single digits in the longer run,” said ICICI Securities.
Dabur: Dabur’s fiscal fourth quarter net profit declined 0.5 per cent to Rs 292.76 crore from Rs 294.34 crore in the same quarter last year, missing estimates of Rs 350 crore. Dabur missed on both revenue and margin estimates. Dabur reported 6.4 per cent sales growth led entirely by pricing growth, and the domestic sales was up 4.7 per cent on-year led by strong growth in food and beverages, said ICICI Securities while adding that the “decline in commodity prices would help the rural demand scenario”. In terms of rural demand, HDFC Securities maintained, “The rural market continues to witness downtrading and is still in the recovery phase, although early signs of green shoots are visible.”
Godrej Consumer Products: Godrej Consumer Products reported a 24.47 per cent growth in its consolidated net profit to Rs 452.14 crore in the fourth quarter, led by volume growth. GCPL Q4 net sales was up 9.8 per cent led by India business. “EBITDA margin was up 410 bps YoY to 20 per cent in Q4, led by softening of commodity prices and operating leverage. In FY24E, we expect EBITDA to grow in the high teens, driven by recovery in gross margin at normative levels and low controllable cost, offset by higher media spend,” said Elara Securities.
Colgate-Palmolive: Colgate-Palmolive posted its fiscal fourth quarter profit at Rs 316.22 crore, down 2.3 per cent from Rs 323.57 crore in the same quarter last year. Colgate’s domestic revenue grew 5 per cent YoY, led by high single-digit growth in toothpaste. Volumes arrested a declining trend of the previous four quarters and were flat. “Colgate continues to focus on: 1) the increase in per capita consumption (particularly in rural areas where 55 per cent of households don’t brush daily); 2) premiumising through science-based innovation; and 3) building personal care. We model 6 per cent revenue growth for FY23-25, with the EBITDA margin expected to hover at +30 per cent,” said HDFC Securities.
Britannia: Britannia Industries posted 47.06 percent on-year growth in consolidated net profit at Rs 558.66 crore for the March quarter. Britannia’s Q4 sales were Rs 4023 crore up 13.3 per cent YoY, led by 2-3 per cent volume growth. “Growth came on the back of handsome distribution gains and broad-based growth across business and channels. Britannia continues to focus on increasing rural distribution, which fueled 1.4x gains in market share versus all-India,” said Elara Securities. EBITDA margin, it said, was in line with the expectations of 18.1 per cent and rose 260 bpc led 560 bps gross margin expansion, aided by softening palm oil prices and benefits of consuming wheat at lower prices due to strategic covers.