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<ul><li>FMCG giant HUL’s shares reported a decline of over 6% on Thursday.</li><li>This comes a day after the company reported a 2.33% decline in consolidated net profit in Q2.</li><li>The stock tanked 6.59% to ₹2,483.95 on the NSE.</li></ul>Shares of FMCG major <keyword id="20002610" type="General" weightage="20" keywordseo="Hindustan-Unilever" source="keywords">Hindustan Unilever</keyword> Ltd (HUL) on Thursday tumbled over 6% after the firm reported a 2.33% decline in consolidated net profit for the second quarter ended in September. The stock tanked 6.59% to ₹2,483.95 on the NSE. The stock emerged as the biggest laggard among the Sensex and Nifty firms during the morning trade. Hindustan Unilever Ltd on Wednesday reported a 2.33% decline in consolidated net profit at ₹2,595 crore for the second quarter ended in September 2024, impacted by moderation in demand from the urban market. The company had logged a net profit of ₹2,657 crore in the July-September quarter a year ago, HUL said in a regulatory filing. However, revenue from product sales was up 2.36% at ₹15,703 crore in the September quarter, from ₹15,340 crore in the year-ago period, HUL which owns power brands such as Surf, Rin, Lux, Pond's, Lifebuoy, Lakme, Brooke Bond, Lipton and Horlicks said. "In the September quarter, <keyword id="21419477" type="General" weightage="20" keywordseo="FMCG-demand" source="keywords">FMCG demand</keyword> witnessed moderating growth in urban markets, while rural continued to recover gradually. In this context, we delivered a competitive and profitable performance," HUL CEO and Managing Director Rohit Jawa said. HUL reported an underlying sales growth of 2% and underlying volume growth of 3%. Total expenses were at ₹12,581 crore in the September quarter, up 3.03% year-on-year. HUL's total income, which includes other income, was up 2.14% to ₹16,145 crore in the September quarter of FY25. Addressing an earnings call, HUL CFO Ritesh Tiwari said, "Two thirds of our business we do in urban areas, and one-third we do in rural areas … we are seeing growth in the urban market moderating. We are seeing rural growth recovery is gradual … it impacts all the categories that we have." On the outlook, he said, "In the near term, we expect demand trends to be stable with no further acceleration in pace of growth." In this context, Tiwari said, "Our focus remains on driving competitive volume-led growth, while continuing investments behind our brands and strategy priorities … If commodity prices remain where they are, we expect a low single digit price growth in the near-term." With inputs from PTI. SEE ALSO: <a href="https://www.businessinsider.in/stock-market/webstories/afcons-infrastructure-ipo-gmp-risk-factors-and-all-you-need-to-know/slidelist/114490954.cms">Afcons Infrastructure IPO – GMP, risk factors and all you need to know</a> <a href="https://www.businessinsider.in/tech/news/upi-refund-scam-to-digital-arrest-scam-here-are-most-common-online-scams-in-india/articleshow/114428011.cms">UPI refund to digital arrest scam, here are some online scams you need to be aware of</a> <a href="https://www.businessinsider.in/stock-market/news/waaree-energies-ipo-allotment-how-to-check-allotment-ipo-gmp-listing-date-and-more/articleshow/114508632.cms">Waaree Energies IPO allotment – How to check allotment, IPO GMP, listing date and more</a>

Hindustan Unilever shares tumble over 6% post Q2 results

<ul><li>Price cuts taken in mass segments will erase pricing-led growth seen in FMCG companies.</li><li>Few analysts are confident that price cuts will add to volume growth in Q2.</li><li>Without a meaningful rural recovery, volume growth will remain slow. </li></ul>It might be a slow second quarter for FMCG companies with hazy volume recovery and tapering raw material effects. The rise of new and local players have been eating into the business of top FMCG players. And, they chose to <a href="https://www.businessinsider.in/business/news/soap-opera-fmcg-players-kick-off-price-war-to-bring-back-whats-lost/articleshow/103657469.cms">take price cuts in mass categories </a> during the quarter. Analysts are divided on how much price cuts will add to volume growth. A report by Centrum said that price cuts pushing are primary volumes but off-take lags. The demand for packaged foods is rising but hair oils, toothpaste categories saw falling volumes. “Selling prices have been rationalised given the drop in commodity costs but there has not been a commensurate increase in volumes yet,” said J M Financial. The pricing-led growth in FMCG companies is now a thing of the past. Without significant volume recovery, revenues are ecpected to remain subdued this quarter. “We expect low single digit volume growth and low-to-mid single-digit value growth for most FMCG companies, with the tapering of pricing growth due to price cuts and/or anniversarization of price hikes. The underlying rural demand remains subdued. Uptick, if any, would be optical off a low base,” said a report by Kotak Institutional Equities. Analysts believe that without a meaningful recovery in rural demand which is yet to pick up, volume recovery will remain slow. Even tapering inflation during the quarter has not improved the rural consumer sentiment due to unseasonal rains. Moreso, the festive consumption of discretionary items also comes with a lag this year due to the ‘Adhik Mas’ effect. Raw material benefits slip On the other hand, the margin growth seen last quarter due to lower raw materials will also taper off. The raw material index has moved up by 8-9% over the last three months. Between July and September, crude oil prices rallied by 20%, and commodities will not be as benign as they were in Q1. On a year-on-year basis however their costs will be lower, adding to margins due a favourable basis. “A favourable base would still drive strong year on year gross profit margin expansion and earnings for September quarter, but some of the margin gains would be in the base soon especially given the recent uptick in raw material prices,” said J M Financial. The stress of rising competition will also eat into margins in more ways than price cuts. Players will continue to ‘normalise’ brand-building investments that were run down during the hyper-inflationary phase in FY23. “Most companies have indicated that a large part of gross margin savings will be invested behind brands. Hence, operating margin expansion will be lower compared to gross margin expansion,” said Sharekhan. Investors will watch out for management commentary on how volume uptick in the second half of the year. And a picture on when rural India will see a full-fledged recovery. <div type="javascript" title="Custom" contenttype="Text"><cdata><![CDATA[]]></cdata></div>

Price cuts might not bring in volume growth for FMCG majors in Q2 say analysts

<ul><li>FMCG companies are expected to register strong margins in Q1 as they will see the full effect of earlier-taken price hikes playing out. Cooling raw material prices will help. </li><li>Demand for staples have been stable, but the beauty and personal care category has not yet recovered fully. </li><li>The summer has seen a decline or low growth in ice creams and juices due to unseasonal rains. </li></ul>With cooling raw material costs, the FMCG sector is expected to kick in the first quarter of FY24 with ‘good quality’ profits, backed by improvement in margins. Input costs have been cooling over the last few quarters and have either remained stable or seen mild moderation, and companies have not been passing them off very generously in the form of price cuts. “We expect most of the companies to register stronger sequential gross profit margin (GPM) improvement in 1Q24F with input cost inflation cooling down further, high-priced inventory getting consumed and the full effect of earlier-taken price hikes playing out,” said a research report by Nomura. Certain categories such as hair oils, edible oils and soaps had witnessed price cuts in earlier quarters, which will flow through in the first quarter, as per BNP Paribas. Also, new price cuts and promotions were seen in laundry, edible oils and other home care categories during the quarter but no major price cuts were seen in biscuits and salts. Double digit revenue growth expected Price cuts and volume growth for the sector are directly proportional for the sector, and as of now most of growth seen in the sector was pricing-led. But that’s changing, analysts say. Demand from urban areas has been stable, with slight sequential improvement in rural demand as well. Also, the demand for staples have been stable, but the beauty and personal care category has not yet recovered though improving due to the price cuts. All in all, the sector should be able to present a good revenue growth for the quarter – notwithstanding the cooler summer this April-June with unseasonal rains that affected sales of juices and ice creams. “We estimate staples/discretionary (ex-ITC) pack to register 10.2%/8.8% revenue growth. We expect a good quarter from Nestle, Godrej Consumers and ITC and a weak print from Marico,” says a report by Kotak. Antique Stock Broking also expects the FMCG sector (not including ITC) to report early double digit revenue growth with moderation in pricing led growth. ITC is expected to see a fall in revenue as its agri business is expected to see a drop due to high-base effects. Nomura expects Nestle, Tata Consumers and Dabur to report the highest revenue growth YoY, and with ITC and Marico to post lower value growth. FMCG sector revenue growth projections YoY <table style="border-width: initial; border-style: none; table-layout: fixed; width: 468pt;"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Company </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Nomura </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Kotak Institutional Equities </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Antique Stock Broking </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">HUL </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;"> 9.1% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">9.1% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">9% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">ITC </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">-6.1% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">4.6%* </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">-6% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Marico </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">6.5% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">4.2% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">4% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Dabur </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">9.4% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">10% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">9% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Godrej Consumer </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">10.2% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">10% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">NA </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Tata Consumer Products </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">11.3% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">12.5% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">NA </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Nestle India </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">15.7% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">16.6% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">16% </td></tr></tbody></table>Source: Research reports *Kotak has considered standalone results for ITC Price cuts &amp; rising competition The street will closely watch management commentary on pricing, as analysts believe that the sector is poised for a good show in the first half of FY24 with a raw material cost tailwind. “However, in the second half of FY24 we expect revenue growth to moderate as pricing benefits should fade and growth would have to be volume-led,” said a report by BNP Paribas. There has been no aggressive price war as of now in the sector as of now, but if price cuts are not taken by large players in the segment, it might lead to unorganized players gaining market share. In the last one year, many consumers have ‘downtraded’ to unbranded products or local brands during periods of high inflation. “Prices of most stock keeping units (SKUs) have increased sharply over the last two years. Soap and detergent prices have risen 40-50% over that period. So far the price cuts have been limited and largely confined to the value segment. We believe price cuts might be needed to drive volumes,” said BNP Paribas. Without pricing strategies laid out, most FMCG players might see revenue growth challenges re-emerge this year, especially in the second half. 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FMCG sector Q1 preview — Caught between price cuts and volume growth

Encouraged by volume growth, margin improvement and recovery in rural sales, India's top fast-moving consumer goods (FMCG) companies are now back to their normal growth cycle as they step up investments as well as spending on advertising and marketing. <keyword id="84065" type="General" weightage="20" keywordseo="fmcg-companies" source="Orion">FMCG companies</keyword> are chasing volume growth again after a gap of a few quarters, offering higher grammage and price cuts thanks to inflationary pressures softening on key raw materials for everything from soaps to food items. Hindustan Unilever (HUL), Dabur, Marico, Godrej Consumer Products, ITC, Tata Consumer Products and Nestle reported volume recovery in the March quarter and said they expect a gradual pickup in consumption in FY24. "The prospects of a sustained recovery have strengthened. After five quarters of volume decline, the sector has posted volume growth," Marico MD and CEO Saugata Gupta said in the company's earnings conference call. "Urban consumption has been steady while rural is showing some convincing signs of having bottomed out." Foods continue to drive growth for the sector, while the home and personal care segment also entered positive territory after an extended slowdown. Marico, which owns popular brands like Saffola, Parachute and Livon, reported an 18.7 per cent increase in its consolidated net profit to Rs 305 crore for the fourth quarter ended March 2023 while sales rose 3.65 per cent to Rs 2,240 crore, driven by single-digit volume growth and moderation in commodity prices. HUL said rural areas have shown improvement with higher value growth sequentially. While HUL's volumes continue to fall, the extent of decline has reduced versus last quarter. "The slowdown in the FMCG market is bottoming out. This improvement was led by volumes, which have turned flat in this quarter, versus a mid-single-digit decline in the December quarter," said HUL CFO Ritesh Tiwari in its earnings call. The makers of popular brands such as Rin, Lux, Surf Excel and Pond's said it expects the price-volume growth to rebalance further. "We expect volumes to recover gradually due to high levels of cumulative inflation and the fact that consumption habits typically recover with a lag," he said. For the March quarter, HUL reported an increase of 12.74 per cent in its consolidated net profit to Rs 2,601 crore. Net sales rose 10.83 per cent to Rs 14,926 crore. However, HUL warned the near-term operating environment is likely to remain volatile due to global slowdown risk and uncertainty related to weather phenomena like El Nino and heatwaves. Abneesh Roy, Nuvama Group Executive Director for Institutional Equities, said the outlook for the <keyword id="495979" type="General" weightage="20" keywordseo="fmcg-industry" source="Orion">FMCG industry</keyword> was "positive" with volume growth and improvement in margins for most companies in FY24. "As raw material prices are cooling off, companies shall start paring prices via grammage increase or gradual price reductions. Price growth shall ease while volume growth will improve," he said. Roy also cautioned about the impact of El Nino and the "aggression" from billionaire Mukesh Ambani-led Reliance Industries Ltd, a known disrupter, which aims to be a big player in the USD 110-billion FMCG segment. Meanwhile, Godrej Consumer reported an 11.47 per cent increase in its India revenue to Rs 1,822.92 crore in the March quarter. This was led by volume growth of 11 per cent. Its home care segment, which consists of household insecticides and air fresheners, grew 14 per cent and 17 per cent, respectively. "We expect to build on the current momentum and deliver volume-led growth along with upfront marketing investments and improvement in profitability," said its Managing Director and CEO Sudhir Sitapati. Britannia Executive Vice-Chairman and Managing Director Varun Berry also expressed optimism. "Volume growth will be certainly much better than this year," he said. On commodity prices, Berry said there is deflation in prices of palm oil, laminates and corrugated material for packing but flour and milk prices are soaring. "There are certain brands and certain packs where we have already initiated price reductions or promotions," he said. In the March quarter, Britannia reported a 47.53 per cent jump in consolidated net profit to Rs 557.60 crore. Its revenue from operations rose 10.93 per cent to Rs 3,892.02. Similarly, Dabur reported volume growth of 11 per cent during the March quarter and 14 per cent for FY23. Its quarterly net profit was Rs 292.76 crore and revenue from operations stood at Rs 2,677.8 crore. "Despite near-term concerns around inflationary pressures, we plan to accelerate the growth momentum by continuing to invest in brand building, innovation, and capabilities that will drive growth," said Dabur India CEO Mohit Malhotra. Other companies also recorded growth. ITC's revenue from the FMCG segment rose 19.34 per cent to Rs 4,951.17 crore from Rs 4,148.62 crore while EBITDA jumped 76 per cent. Nestle, the maker of Maggi, Kitkat and Nescafe, reported an increase of 24.69 per cent in its net profit to Rs 736.64 crore in the March quarter. Sales rose 20.43 per cent to Rs 4,808.40 crore. Tata Consumer reported a 21.12 per cent rise in its consolidated net profit to Rs 289.56 crore. Its revenue from operations was up 13.96 per cent at Rs 3,618.73 crore. Tata Consumer said it recorded growth in the India beverages business and food. It had a "strong margin growth and strong topline growth driven both by volume and price," the company said in its earnings call. "We have started seeing volume growth coming back. The impact of inflation and monetary tightening on economic growth and demand seems to be slowing down, but I would keep my fingers crossed and monitor it closely," said Tata Consumer MD and CEO Sunil D'Souza. "In the near term, we are seeing stability." 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FMCG makers expect sustained recovery in volume and margins with price reduction in FY24

<ul><li>Volume contraction for the FMCG sector was more pronounced in rural areas, says a <keyword id="87153" type="General" weightage="80" keywordseo="bnp-paribas" source="Orion">BNP Paribas</keyword> report. </li><li>While the research firm expects margin improvement in FY24, its earnings estimates are below consensus on account of INR depreciation, increase in ad spends and selective price cuts. </li><li>We think consensus earnings estimates for FY24/25 are too optimistic, the report says. </li><li>The valuation multiples of Indian FMCG companies have expanded since June 2022, BNP Paribas says. </li></ul>Consumer goods majors have been hit hard by inflation over the last few quarters, with volume growth taking a backseat. Clearly, growth has been driven by multiple price hikes that were taken by the players – and not volume growth. The road ahead looks better as commodity prices are cooling and price cuts could even spur consumption. In spite of the fact that affluent India’s consumption is holding up well, volumes from mass-market and categories that benefitted from Covid like healthcare and hygiene segments <a href="https://www.businessinsider.in/finance/article/inflation-burns-a-hole-in-the-pockets-of-indias-lower-income-households-from-fmcg-goods-flip-flops-to-crackers-consumption-takes-a-backseat/articleshow/95536971.cms">were affected by inflation</a>. “Revenue growth was driven by price hikes, with volumes remaining subdued across categories. The volume contraction was more pronounced in rural areas. Companies expect rural demand to recover in the second half of FY23, on the back of government interventions, a good monsoon and higher crop realisations,” says BNP Paribas. Ad spends and price cuts Going forward, BNP shares the optimism of the companies that the second half of the current financial year will bode well for revenues and margins too as commodity prices are moderating. “While we expect margin improvement in FY24, our earnings estimates are below consensus as we anticipate INR depreciation, an increase in advertisement spends and selective price cuts to drive volumes that are under pressure,” said the research firm. Lower ad spends in addition to a cut in corporate tax rates have been aiding the sector’s earnings growth for the last five fiscal years in spite of muted growth in revenues and gross profits. But now ad spends might resume to bring back consumers who have been downtrading to cheaper unbranded products for the last six months, leaving little scope for a strong margin recovery. Lower estimates, pricier stocks BNP Paribas raised its sales estimates for most companies during the earnings season but lowered the aggregate EBITDA margin for the sector by 30 bps to 20.9-22.1% for FY23 and FY24 – thereby reducing EBITDA as well as earning per share by 1-2% for both the years. “While the outlook for FY24 is positive, driven by moderation in raw material costs and signs of a <keyword id="9592296" type="General" weightage="20" keywordseo="rural-recovery" source="Orion">rural recovery</keyword>, we think consensus earnings estimates for FY24/25 are too optimistic. With no triggers for a sharp multiple de-rating, we believe some stocks can see time correction over the next year. Our preferred sector picks remain ITC, Britannia, Emami and Jubilant Foodworks,” said the report. Most FMCG stocks have been on a bull run in the last five months, and that has made them expensive relative to the tough conditions that await for its volume growth. “Since June 2022, the valuation multiples of Indian FMCG companies have expanded as concerns about unabated inflation eased. This has led to several stocks moving above their five-year mean next twelve months, price to earnings ratio,” the report said. The downside risks that the research firm sees include an increase in competitive intensity, leading to companies cutting prices and sales growing at a lower-than-expected rate; and lower-than-expected margin recovery. Rural recovery to be affected by muted Kharif season Many economists and rating agencies are also questioning the pace of economic growth of the country – marred by <a href="https://www.businessinsider.in/finance/news/no-end-to-downgrades-in-gdp-estimates-as-economists-remain-divided-on-severity-of-slowdown/articleshow/95847763.cms">constant downgrades</a>. Apart from global spillovers, experts believe that a lot is riding on the rural recovery – that will play a big role in the volume and revenue growth of FMCG majors. While there have been green shoots of recovery seen in <a href="https://www.businessinsider.in/business/auto/news/mixed-demand-trends-for-autos-in-november-as-festive-boost-wears-off-but-signs-of-rural-recovery-visible/articleshow/95848505.cms">spurts like auto sales</a>, rural consumption has remained muted even after lockdowns ended. A major driver for rural recovery is a good Kharif crop, which, however, has been affected by erratic monsoons this year. “Untimely heavy rainfall in the states across North-west and Central India between end-September 2022 and mid-October 2022 is likely to have added to the moisture levels of the standing crop, which poses some downside risks to the kharif output relative to the first Advance Estimates,” said an ICRA report. SEE ALSO <a href="https://www.businessinsider.in/business/news/vikram-kirloskar-the-mit-engineer-who-loved-to-build-factories/articleshow/95875911.cms">Vikram Kirloskar: The MIT engineer who loved to build factories</a> <a href="https://www.businessinsider.in/business/corporates/article/tatas-mega-aviation-merger-is-poised-for-flight-but-the-skies-are-not-clear-yet/articleshow/95526116.cms">Tata's mega aviation merger is poised for flight, but the skies are not clear yet</a>

India FMCG sector profits may be weighed by ad spend hikes, price cuts: BNP Paribas

<ul><li><keyword id="9064221" type="General" weightage="100" keywordseo="ad-volumes" source="Orion">Ad Volumes</keyword> on Television continue to post a healthy growth, with the July-Sept quarter registering 461 million seconds of advertising, according to <keyword id="2801660" type="General" weightage="20" keywordseo="barc-india" source="Orion">BARC India</keyword>’s July-Sept 2021 Ad Volumes - Special Festival Edition THINK Report.</li><li>Ad Volumes on TV in the Ganesh Chaturthi week grew 4% compared to the previous four-week average and posted a healthy 28% growth over 2019.</li><li>Ad Volumes on TV for September 2021 is the highest since 2019, registering a 15% growth over the same period in the previous year. </li><li>While <keyword id="34523" type="General" weightage="20" keywordseo="fmcg" source="Orion">FMCG</keyword> continued to maintain its leadership position with a 29% growth in Ad Volumes against the same period in 2019, the E-commerce sector has also shown a healthy 26% jump over 2020.</li></ul>Ad Volumes on Television continue to post a healthy growth, with the July-Sept quarter registering 461 million seconds of advertising – which is the highest this year – as per BARC India’s July - Sept 2021 Ad Volumes - Special Festival Edition THINK Report. What is also significant is that the growth registered in the quarter is broad-based, with channels across all languages reporting higher ad volumes over the corresponding period in previous years. With the festive season well and truly underway, the September THINK Report also takes a closer look at advertising on TV during the Ganesh Chaturthi Week. Ad Volumes on TV in the week grew 4% compared to the previous four-week average and posted a healthy 28% growth over 2019. Speaking on the trend, <keyword id="7538858" type="General" weightage="20" keywordseo="aaditya-pathak" source="Orion">Aaditya Pathak</keyword>, Head of Client Partnership &amp; Revenue, BARC India, said, “The momentum of more and more brands banking on television advertising continues to be visible with 3397 new brands entering the medium in the July-Sept quarter of 2021, and that too with a 51% share of total brands advertising. The number of advertisers on TV is also the highest for the quarter at 4226. As we have seen in earlier years, marketers are clearly leveraging the reach and power of TV to raise the visibility of their brands this festive season. The strong growth of Ad Volumes in Q3 – which is 40 million seconds higher than in Q2 – also points to the positive sentiment regarding the improving economic and business environment.” Ad Volumes on TV for September 2021 is the highest since 2019, registering a 15% growth over the same period in the previous year. While FMCG continued to maintain its leadership position with a 29% growth in Ad Volumes against the same period in 2019, the E-commerce sector has also shown a healthy 26% jump over 2020. While the strong upward trend in <keyword id="407416" type="General" weightage="20" keywordseo="tv-advertising" source="Orion">TV advertising</keyword> is seen at the overall level as well as across all languages, the highest spurt was observed for Bhojpuri language channels, where ad volumes were more than double that of 2019, and 38% higher than in 2020. While Hindi language channels account for the largest share of TV advertising, Tamil &amp; Telugu language channels witnessed a robust growth over the previous year, 2020.

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India FMCG sector profits may be weighed by ad spend hikes, price cuts: BNP Paribas

Katya Naidu

Festive season brings cheer as ad volumes on TV climb to highest levels in 2021

BI India Partner

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