Fast moving consumer goods (FMCG) firms are expected to post a net revenue growth of 11.8 percent in the March quarter, highest in the past 18 quarters, on acceleration in volume growth, GST-led savings and higher leverage benefits, said a report.
However, the March quarter’s performance isn’t strictly comparable with the same quarter last year due to GST-led reporting changes and demonetization impact in the base quarter, according to Kotak Institutional Equities.
“At an aggregate level, we expect net revenue growth of 11.8 percent, highest in the past 18 quarters. We expect 9.9 percent growth for the staples pack, slightly lower than third quarter FY18’s 11.2 percent on a reported basis but higher on a base-adjusted basis,” it said.
The report estimated aggregate revenue growth for the discretionary pack at 13.5 percent, while the aggregate volume growth at 8 percent.
It noted that companies have started increasing prices selectively to pass on raw material inflation after being cautious for the first few months post GST implementation.
“Fourth quarter FY18 is thus likely to see higher price contribution than third quarter FY18,” it said.
Kotak Institutional Equities expects a 22 percent growth over previous year for adjusted profit after tax, the highest since first quarter of FY13.
It expects the long-anticipated volume growth uptick likely to show up, while margins, aided partly by GST, likely to expand further for most companies.
“Overall, we expect a solid set of earnings prints for most companies. Even as volume growth numbers look weaker versus third quarter of FY18, the same needs to be adjusted for favourable demonetisation quarter base for third quarter of FY18, slightly adverse post-demonetisation quarter base for last quarter of FY18,” it said.
According to the report, while a scientific, mathematically-accurate, adjustment is not possible, the estimated fourth quarter FY18 volume growth numbers reflect acceleration in underlying volume growth trends in the sector.
“This reflects share gains from the unorganised sector in the post-GST world to a large extent and uptick in rural demand to a smaller extent,” it added.
On margin expansion, it noted that even as higher pricing contribution, operating leverage and GST-led cost savings stand out as the key drivers, the broader view is of very benign competitive intensity in the market.
Most food and beverages companies are expected to see good gross margin expansion given the stable to deflationary input cost scenario in agri commodities.
“Price hikes should help mitigate gross margin pressure to some extent,” it said.