Consumer-facing businesses from fast-moving consumer goods (FMCG) to retail have cumulatively delivered a stronger performance in Q3 of FY26 despite facing multiple headwinds during the period. While the performance underscores a broader uplift for the sector after GST rates were rationalised in September, margin pressures remain, driven by competitive intensity, labour code implementation and some input cost pressures.
GST 2.0 and Festive Tailwinds
The December quarter was marked by GST-led disruptions, pricing and pack challenges as well as consumer sentiment that was largely cautious on account of geopolitical issues and trade and tariff-led uncertainties.
Yet, an analysis of 21 companies by FE Research shows that net sales growth in Q3 came in at 10.4%. This is higher than the 5-6% sales growth rate seen in Q1 and Q2 of the ongoing fiscal, according to sector analysts.
Q3 volume growth was also higher at about 6% (versus 2-3% volume growth seen in Q1 and Q2), analysts said, driven by GST cuts, festive and wedding season demand. Operating and net profit margins though narrowed by 95 bps and 71 bps each to 10.67% and 8.29% in Q3 (versus last year). One basis point is one-hundredth of a percentage point.
Strategic Outliers
While most retail firms including Reliance Retail, Avenue Supermarts and Trent were hurt by a split in festive season spending spread over two quarters, the outlook remains positive for the future. Jubilant FoodWorks, on the other hand, remained an outlier in the quick-service restaurant (QSR) segment, with Q3 performance driven by stronger delivery sales, new menu launches and continued store expansion. Like-for-like growth for flagship brand Domino’s Pizza came in at 5% in Q3 despite a high base in the year-ago period.
“I don’t see any headwinds in terms of building the business for a 5-7% like-for-like growth in the future. India is a large opportunity and a multi-decade opportunity. And we are finding large pockets of growth,” Sameer Khetarpal, MD & CEO, Jubilant FoodWorks, told analysts in a post-results investor call this month.
Analysts at JM Financial said they expected a post-Q3 recovery in sales in categories such as grocery, apparels and footwear as consumers begin to prioritise small-ticket discretionary spending after making bigger purchases after GST 2.0 reforms were implemented in September.
Trent’s MD P. Venkatesalu made a similar point at the sidelines of the Retail Leadership Summit on Monday. He said, “Small-ticket discretionary items will benefit in the medium term from GST cuts. The direction of GST is completely in the interest of consumers in terms of the changes that have happened. I do see that helping consumption gradually in the months and quarters ahead.”
Hindustan Unilever’s CEO & MD Priya Nair, meanwhile, has also pointed to a broader shift in consumer demand, saying FY27 will be better than FY26.
“We see a stronger FY27 than FY26 led by favourable macro-economic factors,” Nair said. “Overall food inflation remains low and income tax cuts as well as GST price cuts are beginning to flow into the sector. We are seeing an uptick in demand and consumer sentiment,” she said of the way forward for the sector.