Consumer goods sector Q2 preview: In the consumer goods space, the period from July to September, i.e., Q2FY24, is expected to be muted for the staples segment, albeit stronger for jewellery retail. Sticky food inflation, uneven rains in North India, and a delayed festival season due to ‘Adhik-mass’, are among the reasons that led to softer demand in rural markets and curtailed Q2 revenue of the consumer goods space.

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Staples companies are expected to report low- to mid single-digit volume growth, while foods/cigarettes/paints are expected to deliver high single-digit growth for the quarter. Centrum Broking expects Q2FY24 revenue/EBITDA/PAT growth to be 6.6 per cent/14.9 per cent/12.5 per cent, respectively, including Western QSRs, and the retail sector to report 18.8 per cent/ 4.9 per cent/2.8 per cent growth, respectively.

Urban markets retracted well, yet below-normal rains spoiled rural demand in a few states as consumer sentiment dropped. Centrum Broking's on-ground checks indicate that consumers continued to buy only necessary products or shifted to cheaper options as food inflation remained elevated, which also faltered mass consumption. The analyst indicated that states with lower per capita saw continued weakness in demand. Though falling RM/PM may influence margin recovery, rising media spending may cap EBITDA margins.

Most companies remain ‘cautiously optimistic’, as they expect improved consumer sentiment and upcoming festivals to lift demand post-Q2FY24. Britannia, JUBI, ITC, Emami, and APNT are among the top picks of Centrum Broking in the space.

What to watch out for in the consumer space?

As per the brokerage, the consumer sector could see a few surprises as the results commentary could include:

  1. Volume surprise for food, paints, jewellery, and cigarette companies
  2. Weaker growth for hair oils, toothpaste and beauty and personal care
  3. Rapid growth of B2B pruning channel inventory 
  4. below-normal rains weakening rural demand
  5. Currency headwinds impacting: International business, and imported commodities such as crude and crude palm oil derivatives.

In addition, Sharekhan expects the consumer goods sector to register 5 per cent Year on Year revenue growth in Q2FY2024 with low to mid single-digit volume growth, while price cuts would result in low-value growth for most consumer goods companies.

HUL, ITC, Britannia Industries, Heritage Foods, Jyothy Labs, Tata Consumer Products, Emami, Radico Khaitan, and Ms. Bectors Food are among the top picks of Sharekhan for the sector. It remains selective in the consumer goods space and would prefer companies with better earnings growth visibility along with relatively stable valuations

In the past year, the Nifty FMCG—aimed at capturing the performance of 15 most prominent FMCG companies in the country including HUL, Tata Consumer Products, Godrej Consumer Products, Britannia , Nestle India and Marico—has grown about 21 per cent, sharply outperforming a 2.1 per cent rise in the headline Nifty50 index.

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