Second-quarter earnings from consumer staples companies are not looking that great. Abneesh Roy, ED-Institutional Equities, Nuvama Group expects to see 5-7 percent profit booking in the consumer staples names in the near term.

“Next month, the results will be weak for most of the staple companies,” he added. “Near term, there could be 5-7 percent correction in the staples names that will be the right time to increase exposure to HUL and Britannia. Britannia is one of the few companies where demand recovery has already started.”

Hindustan Unilever Ltd (HUL) has cut prices on soaps and detergents, so he expects the second half of FY23 to be better for the firm in terms of the margin. He believes, on an overall basis, the international business of Dabur will grow faster. “But because of the forex and currency translation, there'll be lower growth. So, Dabur currently will be lower in terms of our pecking order,” he said.

HUL, Britannia, and Godrej will see more expansion in H2 because of the palm oil correction.

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“GCPL will see a very strong expansion in H2 because palm oil is now almost half. Ad spending will go up. So, regarding the EBITDA margin, GCPL may not see much of an expansion because they want to increase ad spend. So, GCPL has to be seen more from a one-year perspective. Yes, Indonesia continues to remain a concern for us. But on the India part of the business, Africa part of the business, a lot of the concerns are getting addressed,” he said.

According to him, there isn’t any recovery in terms of rural demand. “Only noodles and biscuits is seeing recovery because of downtrading,” Roy said. In H2, he expects to see a recovery in rural demand. And there should be some improvement in margins because of the packaging cost.

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Kotak Institutional Equities, in its report published on October 7, also expects ITC, HUL, Britannia and Nestle to lead the pack. It said the discretionary pack is expected to outperform staples on underlying three-year revenue CAGR.

"We estimate the staples/discretionary (ex-ITC) pack to register 10.3 percent /15.3 percent three-year revenue CAGRs. Gross margin pressures will weigh on the profitability of most staples/discretionary companies," it said. The firm also expects modest volume growth and high-single-digit or low-double-digit value growth across the staples pack.

Nirmal Bang also said consumer staples companies (FMCG companies excluding GILL and ITC) would deliver marginally higher performance, with a three-year revenue CAGR of 10.4 percent.

"Price hikes, favourable mix, along with some rationalisation of costs will continue to offset pressure on operating margins from input basket inflation along with an increase in A&SP spends. For the overall FMCG coverage, we expect the EBITDA margin to contract by 100 basis points YoY (-150 bps YoY for consumer staples)," the brokerage firm said.

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First Published:Oct 10, 2022 12:37 PM IST