FMCG Q2 Results: Subdued growth of margin-led earnings amid muted demand

FMCG Results: The Fast Moving Consumer Goods (FMCG) companies witnessed a subdued growth of margin-led earnings in overall topline during the July-September quarter of FY24. As per Emkay Global Financial Services, the impact on sales growth of FMCG companies in Q2FY24 was largely due to the festive loading shifting to Q3.

Rural vs Urban Market

The Rural market has recovered on a low base, however the demand rebound is missing. According to brokerage firm Emkay Global Financial Services, Urban market continues to do well due to accelerated growth in the modern trade and ecommerce channels.

Compared to Home and Personal care categories, Food and Beverages sector continues to grow. The companies have also managed to maintain the product prices in a muted demand setting despite the easing raw material prices. This has led to a better than expected gross margin delivery.

Emkay report further adds that for a continued recouping of margin ahead, the companies must extend the benefits of raw materials. As the margins led earnings story is largely at play, the sector's valuations are holding up on the hope of demand recovery in H2FY24 and thus aiding double digit earnings ahead.

“While we see continued recouping of margin ahead, recovery in demand may require players to pass-on raw-material benefits for accelerating volume growth. Q2FY24 results do not give us enough reason to change our stock calls, but we reduce topline for FY24E due to muted demand," the report said.

The brokerage has also given a buy rating on Godrej Consumer Products, Dabur India, Britannia Industries, ITC and Emami among the FMCG stocks. It has given Sell rating on Colgate-Palmolive India and a ‘Hold’ rating on Hindustan Unilever and Marico.