Makers of soap-to-staples may register strong sequentially improvement in their gross profit margins in the first quarter as high-priced inventory gets consumed, input-cost inflation cools down, and earlier price-hike effects play out, according to Nomura Holdings Inc.
The brokerage forecast Ebitda growth in the low- to mid-teens, with a 16% year-over-year Ebitda gain for staples, led by Britannia Industries Ltd. (45% YoY), while Colgate-Palmolive Co. will report the lowest growth (9% YoY).
It anticipates volume in the paint businesses under its coverage to report at least 25% growth over the previous year. As the percentage of premium value-added products rises during the quarter, the trend of urban demand will improve. To promote sales and new launches, businesses will also be increasing their spending in brand creation.
Nomura estimates the apparel sector demand to be a challenge in the first quarter, while it observes sequential improvement in the footwear sector. Quick service restaurants must be event-driven and there can be high demand in the jewellery sector.
Strong FMCG Sector
Nomura forecasts improved low-to-mid single-digit volume growth for the fast-moving consumer goods sector. It said the demand for staple food categories will continue to be strong, and home and personal care brands will have sequential growth.
However, unseasonal rain has a negative influence on summer product categories, including ice cream, juices and others, which would probably result in reduced growth this quarter, it said.
Rural and Urban Demand
In rural markets, consumer demand is expected to improve, while demand is estimated to rise more quickly in urban markets. The growth in the urban market will be fuelled by momentum across modern trading and e-commerce platforms, according to Nomura.
The recovery in rural demand will take time. The delayed harvest prevented consumers from realising the full benefits of the rabi harvest money, it said.
Pricing-Led Growth
Nomura anticipates a tapering off of pricing-led growth in the upcoming quarters, slowing the increase of sales value as a whole.
In the first quarter, earlier price reductions in the oil and soap categories will be seen. The firm doesn't anticipate any further price reductions in the salts and biscuits segment.
The brokerage anticipates ITC Ltd., Colgate, and Marico Ltd. to report lesser value growth than Nestle India Ltd, Tata Consumer Products Ltd, Dabur India Ltd. and Britannia in terms of revenue growth.
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