The fiscal third quarter was yet another subdued one for the consumer staples segment with indication of it already there from post Q2 commentaries highlighting urban slowdown/weak festive demand/delayed winter. According to JM Financial, volume trajectory is expected to remain subdued in the fourth quarter as well. “Our analysis suggests that Q4FY25 consensus expectations for staples have been toned down, especially on the EBITDA front – 5 per cent cut vs estimates prior to Q3 results, resulting in low-single-digit EBITDA growth. From a medium-term perspective, we have seen a consensus earnings cut of 4 per cent for FY26/27E for our staples coverage (ex-ITC) companies,” the brokerage firm said.
During the third quarter, revenue growth was largely in line, however, negative surprise was gross margin delivery, which missed the estimates. Key highlights, per JM Financial, were: a) Volume growth moderated a tad vs Q2, pricing growth turned positive, b) consumer downtrading/high promotional intensity led to adverse price/mix in certain categories (oral care, HI, paints, biscuits) and c) A&P spends (% to sales) continued to see rationalisation YoY.
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Consumer staples companies have, for long, been struggling to maintain volume growth momentum during the last two years, largely due to external challenges such as erratic monsoons and high inflation, which severely dampened consumption in the mass segment.
Outlook for Q4FY25
While volume trajectory is expected to remain subdued in Q4, JM Financial said, pricing growth is likely to be higher vs trends seen in 9MFY25 as Foods & HPC (Soaps, Hair Oil) players implement price hikes – indicative from commentaries of Britannia, HUL, GCPL, Marico, Bikaji & Gopal Snacks. “Within our staples coverage, we expect Marico, TCPL, and Bikaji to outperform with mid-teen sales growth followed by high-single-digit sales growth for Britannia in Q4,” the brokerage firm stated. On sequential basis, it added, GMs are unlikely to deteriorate further, however YoY compression will continue (atleast for Q4FY25/Q1FY26, post which high RM will start coming into base). Hence, EBITDA performance is likely to lag sales growth for most of the staples players. “While further GM compression (from Q3 levels) is unlikely, the pace of recovery in urban/sales growth will be key for rerating.
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