Consumer Sales Growth Likely At 4.5% In Q3, Rising Raw Material Cost Adds Pressure: Nomura

Nomura Research expects 4.5% year-on-year sales growth in the consumer sector in the October-December quarter of fiscal 2025. This is driven by a hike in prices, but volumes continue to remain under pressure, it said in a report.

The projected growth is similar to the July-September quarter, but lower than the eight-quarter average growth, it added.

The consumer sector remains under pressure due to high raw material prices, which have been weighing upon the gross profit margin, Nomura said. This has likely led to a 2.5% year-on-year decline in the operating profit during the third quarter.

Nomura believes that the overall consumer demand and volumes in the December quarter remained weak, due to a slump in urban demand that was driven by low wage growth and high inflation across categories such as housing and food.

Top Picks

Nomura expects Marico Ltd., Nestle India Ltd. and Godrej Consumer Products Ltd. "to have taken the highest price hikes" in the quarter.

The brokerage's top pick is Marico, as it is set to continue "perform better-than-peers" on the revenue front, it said. The company's estimated 10% revenue growth is a good mix of pricing and volume growth, it added.

Hindustan Unilever Ltd. and ITC Ltd. are also among Nomura's top picks for the sector, as per the report.

Meanwhile, Tata Consumer Products Ltd. is set to see a sharp contraction in margins because of the high inflation of tea prices, Nomura said. Despite this, the brokerage expects the company to have sustained its strong revenue growth momentum of 16% year-on-year in the third quarter.

Nomura expects a sharp drop in volumes for Colgate-Palmolive India Ltd. This is evident compared to the past quarters, from 7% to 2% year-on-year. A sharp drop in volumes is also expected for Britannia Industries Ltd, it added.

The brokerage expects volumes drop for Godrej Consumer as well against its past quarters. The volume has marginally decreased against the previous quarter from 7% to 8% for the company, and have remained flat year-on year, it noted.

Sharing its view on industry wide trends, Nomura said it expects a rebalancing of channel mix to continue. This is because the quick commerce and low-single digit saliency continues its aggressive penetration-led growth.

Despite this, Nomura expects limited impact from new-age brands on these platforms for FMCG companies. Dark stores generally hold more than 75% inventory of products which have high asset turns.

Nomura also noted that it expects rural demand to continue to show improvement, supported by above average monsoon, which is 8% higher and strong Kharif harvest, which has increased 6% from last year. It expects delayed and weaker-than-expected winter to impact companies with winter product exposure.