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Dull quarter with stable margin

Extended Winter and continued weak demand drags volume

In Q4FY24, demand for FMCG products faced ongoing challenges, dampening volume growth. There was no meaningful change in the rural growth trends. Factors,such as low farm income and the rise of small regional competitors, are adversely affecting larger companies. A delayed Winter is likely to impact seasonal categories, such as beverages. We note Chyawanprash sales lost steam in Q3, due to delayed Winter and have not recovered in Q4. Food categories continue to outperform home and personal care products. Reviving rural demand is crucial for the FMCG sector, with companies pinning hopes on a favourable Monsoon, which could stimulate the rural economy.

FMCG universe to report low single-digit value and volume growth

We expect our FMCG coverage universe to report revenue and volume growth of 2.8% YoY and 3.6% YoY, respectively, in Q4FY24E with a fiveyear CAGR of 8.8% vs 9.0% in Q3FY24. In Q4, companies such as, BECTORS, TATACONS, CLGT, and JYL saw stronger revenue growth. Regional firms, particularly in sectors, such as biscuits and laundry, continue to challenge larger competitors due to favourable commodity prices. This fierce competition is dragging companies such as HUVR and BRIT. However, JYL and BECTORS stand to gain from enhanced distribution. VBL and DABUR might encounter hurdles from slow beverage demand in the domestic market, due to a delayed Winter. TATACONS' growth stems from robust performance in new ventures, increased volume in salt, and the acquisition of Capital Foods. CLGT is expected to achieve high single-digit growth through aggressive promotional offers in modern trade and premiumization while for GCPL we estimate double-digit growth in the domestic business, aided by Raymond Consumer Care (RCC) acquisition (ex-RCC ~3% YoY).

Most key RM are stable

In Q4, essential commodities, such as crude and palm oil, have witnessed a sequential increase. However, it has not been significant to impact margin as YoY growth remains subdued. Companies focus have been focused on offering higher schemes to drive volume and there have been no incremental price cuts.

Margin to remain in a same range as in Q3

For Q4FY24E, we expect gross margin expansion of 185bp YoY and flat QoQ (ex-ITC, up 260bp YoY & flat QoQ), and EBITDA margin gains of 20bp YoY but flat QoQ (ex-ITC, up 80bp YoY and flat QoQ), led by benign input prices, partly offset by higher spend on advertising. We expect our FMCG coverage universe to post EBITDA growth of 3.5% YoY (ex-ITC growth of 7.2% YoY). Except for BRIT, ITC, BECTORS and HUVR, which could experience a decline in EBITDA margin, other companies are expected to achieve margin expansion. Companies, such as CLGT, NEST, GCPL and DABUR, are anticipated to achieve margin expansion exceeding 250bp YoY. Our preferred picks are Mrs. Bectors, Godrej Consumer and Tata Consumer.