FMCG sector Q1FY24 review: Volume growth remained modest with weak demand

The June 2023 quarter was the mixed quarter for India Inc with majority companies across industries reporting in-line results for the first quarter of FY23, except for few that either surpassed expectations while many others missed analysts’ estimates. In that, the FMCG sector saw weak demand during Q1FY24, with low-single digit volume growth reported by most staple categories. “The low reported growth of the listed companies may also reflect their loss of market share to regional players. Nonetheless, we note that demand recovery has been quite long-drawn in the rural economy. Barring a few companies in the discretionary segments such as paints, volume growth remains modest with 1) FMCG business of HUVR showing 3 per cent growth, 2) BRIT reporting 4.5 per cent growth and 3) DABUR seeing a modest 3 per cent growth,” said Amit Agarwal Vice President – Fundamental Research, Kotak Securities Ltd.

While most consumer companies witnessed a sharp improvement on-year basis and modest improvement in gross and EBITDA margins on a QoQ basis, A&P expenditure increased marginally sequentially. Meanwhile, Kunal Vora from BNP Paribas Securities India, said, “Raw material (RM) prices peaked in Q1FY23 and continued to soften since then. It further corrected in Q1FY24, with several key RMs such as crude, palm oil, copra, coffee, rice bran, palm fatty acid distillate (PFAD) and linear alkyl benzene (LAB) correcting YoY. This led to QoQ and YoY improvements in Q1FY24 gross margins for most companies.

“Demand trends in the domestic market for Q1FY24 continue to be in line with those of the previous few quarters. While urban markets were steady, the pick-up in rural demand, which companies expected, remained elusive for most companies,” he said.

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However, according to NielsenIQ data, India’s organised retail sector, accounting for approximately 12 per cent of total FMCG sales, witnessed its highest growth in six quarters, recording a year-on-year surge of 21.1 per cent during the April-June period. This growth was fueled by a stable urban demand environment.

Here is a look at how major FMCG companies performed during Q1FY24:

HUL: HUL posted fiscal first quarter profit at Rs 2,556 crore, up 6.9 per cent in comparison to Rs 2,391 crore in the corresponding quarter of last year. HUL posted the profit growth during Q1 on a gradual recovery in the FMCG industry despite operating in a challenging environment. The gross margins in the first quarter expanded by 256 bps YoY while the EBITDA grew by 8.4 per cent on-year to Rs 3,520 crore. “In the near-term, FMCG industry will continue to witness rebalancing of price-volume growth equations and a gradual recovery in consumer demand,” Rohit Jawa, CEO and Managing Director, HUL, had said in a statement.

Dabur: Dabur posted fiscal first quarter profit at Rs 456.61 core, up 3.5 per cent on-year as against Rs 441.06 crore during the corresponding quarter of FY23. It posted revenue from operations at Rs 3,130.47 crore, up 10.9 per cent on-year. The company crossed the Rs 3,000 crore mark for the first time in the first quarter driven by strong double digit growth in both HPC and HC businesses, it had stated. The company EBITDA stood at Rs 604.7 crore.

ITC: ITC posted its fiscal first quarter profit at Rs 5180.12 crore, up 16.1 per cent in comparison to Rs 4462.25 crore during the first quarter of FY23. It posted revenue from operations at Rs 18,639.48 crore, down 6.0 per cent as against Rs 19,831.27 crore during the corresponding quarter of previous year. Its FMCG business posted a revenue growth of 16.1 per cent on-year to Rs 5166 crore. While staples, biscuits, noodles, beverages, dairy, agarbatti and premium soaps posted strong growth, education and stationery products business continued to witness strong traction, it said. The segment witnessed growth in both urban and rural markets with traction from both traditional and emerging channels (viz. modern trade, e-commerce, quick commerce).

Adani Wilmar: Adani Wilmar posted a loss of Rs 78.92 crore during the first quarter of financial year 2023-24 as against a profit of Rs 193.59 crore during the corresponding quarter of FY23. It posted revenue from operations at Rs 12,928.08 crore, down 12.2 per cent as against Rs 14,724.09 crore during the first quarter FY23. Its Q1 profitability was impacted by decline in edible oil prices that continued in Q1 as well, leading to high-cost inventory, dis-alignment on hedges, TRQ disparity, and finance cost. “Our margins during the quarter got impacted by high-cost inventory in a falling edible oil price environment and dis-aligned hedges compared to spot prices of physical commodity,” Angshu Mallick, MD & CEO, Adani Wilmar Limited, had said.

Nestle: Nestle India posted profit for the June 2023 quarter at Rs 698.34 crore, up 36.9 per cent in comparison to Rs 510.24 crore during the same quarter last year. It posted revenue from operations at Rs 4658.53 crore during the quarter ended June 30, 2023, up 15.1 per cent on-year. “This is the fifth quarter in a row of double-digit growth across all product groups. Domestic sales growth is broad based and grew by 14.6 per cent, on the back of prudent pricing and supported by mix and volume with targeted brand support. Key brands continued to perform well, led by KitKat, Nescafé and Maggi among others,” Suresh Narayanan, Chairman and Managing Director, Nestlé India, had said.

Marico: Marico posted fiscal first quarter profit at Rs 436 crore, up 15.6 per cent in comparison to Rs 377 crore during the corresponding quarter of FY23. It posted revenue from operations at Rs 2,477 crore, down 3.2 per cent as against Rs 2,558 crore during the first quarter of financial year 2022-23. The company EBITDA stood at Rs 574 crore. Gross margin, it said, expanded ahead of internal expectations, by 494 bps YoY and 257 bps sequentially, owing to incrementally softer input costs. A&P spends were up 7 per cent YoY. The company said that the food business continued its healthy scale up with 244 per cent value growth on-year, aided by steady growth in core and newer franchises. “Saffola Oats maintained its market leadership, while newer categories of Honey and Soya Chunks gained scale. Peanut Butter, Mayo and Munchiez have also seen encouraging traction so far,” it had said.

Britannia: Britannia Industries posted its fiscal first quarter profit at Rs 455.45 crore, up 35.7 per cent in comparison to Rs 335.74 crore during the corresponding quarter of FY23. It posted revenue from operations at Rs 4,010.70 crore, up 8.4 per cent as against Rs 3,700.96 crore during the same period last year. The company’s consolidated sales during the quarter was at Rs 3,969.84 crore. “In this quarter, commodity prices marginally softened and hence, the local competition intensified. In view of that situation, certain price corrections were initiated to remain competitive and continue to drive topline while maintaining profitability. In this context, we delivered a healthy revenue growth of 9 per cent on the back of robust distribution gains coupled with requisite investments in brands,” Varun Berry, Executive Vice Chairman & Managing Director, Britannia Industries, had said.