Brokerage firm HDFC Securities (HSIE) in its sector review said that the consumer index sales grew by 12% year-on-year (YoY) in Q4FY23 which was higher than 11% growth in Q4FY22 and 11% in Q3FY23.
HSIE coverage universe comprised 14 companies across various consumption categories viz. oral care, haircare, personal care, home care, food & beverages (F&B), OTC FMCG, cigarette, footwear, paints, QSR, dairy, and liquor.
“We note that Q4/FY23 growth was pricing led,” the HSIE report said, adding that volume growth remained soft throughout FY23 although it improved in Q4 and grew in low single digit.
The category outperformers on the last twelve month (LTM) basis were F&B and home care while the underperformers OTC FMCG/healthcare.
F&B and home care continued to drive performance for essentials, growing by 12/11% on a four-year CAGR basis, the HDFC Securities report said. Meanwhile, personal care/oral care / hair care saw revenue CAGRs of 7/5/4%. OTC FMCG / healthcare revenues fell 2% YoY on account of a high base, the report said further.
High inflation had an impact on the discretionary categories which saw sequential deceleration. “With sustained high inflationary environment impacting consumer wallets, discretionary categories witnessed sequential deceleration in demand,” the report said.
Paints and QSR segments reported a four-year CAGR of 14 and 13%, respectively.
Highlights
— On a four-year CAGR basis, paints/QSR/F&B/home care segments have grown ahead of HSIE index average of 14/13/12/11%, respectively, in Q4FY23.
— Cigarette revenues grew 14% YoY on a low base.
— QSR growth was largely store addition led as most players reported low single digit SSSG (same store sales growth).
ET CONTRIBUTORSOutlook
HDFC Securities said that it sees divergence between volume and pricing to return to normal, going ahead. The discretionary categories will underperform in the coming year.
While urban consumption continues to exhibit faster recovery and has remained steady, rural consumption is recording a reversal of declining trend. “We believe the rural sector has most likely bottomed out. We expect demand to sustain this trajectory, given moderating input costs and retail inflation,” the report said.
HDFC Securities said that a sustained improvement in gross margins across most FMCG companies in the coming quarters is likely to be seen.
HDFC Securities
Nomura
Brokerage firm Nomura said that earnings for the sector is supported by relatively stable demand and expansion in EBITDA margin with fall in commodity prices. It said that the rural growth has been weak but it is stabilising and could improve in coming quarters.
“The valuations are close to the pre-COVID19 levels. Moderation in bond yields also provides support to valuations,” the brokerage noted while recommending Hindustan Unilever, Britannia and Godrej Consumer Products as its preferred picks.
IIFL Securities
“We feel the markets have run up quite a bit on US rate cut hopes, debt ceiling deal and lack of sufficient pessimism on the impact of policy rate hikes around the world by central banks and India market valuations at 19X are above long term average. FMCG tends to perform well in such circumstances. Britannia is the top pick,” IIFL said.
The brokerage firm has given a ‘Downgrade’ rating to Dabur India at 8.5%.
Motilal Oswal
Motilal Oswal is betting on ITC and Godrej Consumers. While ITC has a better-than-expected demand recovery and a healthy margin outlook in cigarettes coupled with healthy sales momentum in the FMCG business and recovery in hotels business, GCPL has been improving its India business sales growth in the recent years, and FY23 is the third consecutive year of close to double-digit sales growth after a tepid FY16-FY20 period.
Nifty FMCG
The Nifty FMCG index has given returns of over 33% in the last 12 months, outperforming the broader Nifty50 index which has given returns of 12%.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)