From HUL to Britannia, FMCG companies continue to lag India Inc peers

Big, listed FMCG (fast-moving consumer goods) companies such as Hindustan Unilever, ITC, Nestlé, and Britannia have been top-performing stocks on the bourses in recent weeks.

The Nifty FMCG index, which tracks the share prices of the country’s top 15 listed FMCG companies, is up 1.9 per cent month-to-date in May compared to a 2.4 per cent decline in the benchmark Nifty 50 in the period.

In contrast, the Nifty FMCG index had declined 4.8 per cent in the first four months of 2024 calendar year against a 4 per cent rally in
Nifty 50 in the period.

A reversal in the fortunes of FMCG companies is, however, yet to reflect in their financial performance.

The FMCG companies that have declared their results for January-March 2024 (Q4FY24) continue to lag the rest of India Inc in terms of revenue and profit growth.

As a result, the sector’s contribution to revenue and profit declined to at least a five-year low in Q4FY24.

The 19 listed FMCG companies in the Business Standard sample accounted for just 3.2 per cent of corporate profits (adjusted for exceptional gains and losses) in Q4FY24, down from the 3.8 per cent in Q3FY24 and the pre-pandemic share of 6.3 per cent.

Similarly, the FMCG companies accounted for 2.47 per cent of the combined net sales of all listed companies in the sample, down from the 2.63 per cent in Q3FY24 and the pre-pandemic share of 2.84 per cent.

The combined adjusted net profits of the listed FMCG companies in the sample were up 4.7 per cent year-on-year (Y-o-Y) in Q4FY24 compared to 8.4 per cent Y-o-Y growth in overall corporate net profits in the quarter.

Including exceptional gains and losses, the FMCG companies’ combined net profits were down 37.5 per cent Y-o-Y in Q4FY24 compared to 12.1 per cent Y-o-Y growth in the combined net profits of all listed companies in the fourth quarter.

The combined reported net profits of the FMCG companies were down 30.3 per cent Y-o-Y in Q4FY24 compared to 12.2 per cent Y-o-Y growth in the combined reported net profits of all listed companies in the fourth quarter.

Reported net profits for the sample were adversely affected by a one-time asset impairment loss of Rs 2,376 crore announced by Godrej Consumer Products in Q4FY24.

The FMCG companies reported adjusted net profits of Rs 7,334.3 crore in Q4FY24 compared to Rs 7,826.5 crore in Q3FY24 and Rs 7,005.2 crore in Q4FY23.

Their net sales, on the other hand, moved to Rs 52,142 crore in Q4FY24 from Rs 53,098 crore in Q3FY24 and Rs 50,345 crore in Q4FY23.

In comparison, the combined net profits of all 534 listed companies in the sample grew to Rs 2.26 trillion in the fourth quarter from Rs 2.07 trillion in Q3FY24 and Rs 2.09 trillion in Q4FY23.

The sample excludes the listed subsidiaries of other listed companies in the sample.

The companies in the sample accounted for nearly 55 per cent of the combined market capitalisation of all companies listed on the BSE.

The FMCG sample includes all industry majors with the exception of ITC and Berger Paints, which are yet to declare their quarterly results.

Analysts attribute the FMCG companies’ poor showing to continued weaknesses in consumer demand in the economy.

“The quarterly results of FMCG companies reflect the continued weakness in consumption growth in the economy.

"Besides, growth in volumes failed to compensate for price cuts undertaken by many companies, leading to poor net sales and profit growth,” said Dhananjay Sinha, co-head (research and equity strategy), Systematix Institutional Equity.

Amnish Aggarwal, head of institutional research, Prabhudas Lilladher, said: “Asian Paints delivered results below our consensus estimates in Q4FY24 amid weak demand conditions and down trading.

"Volumes witnessed 10 per cent growth but revenue de-grew by 1.8 per cent due to additional price cuts taken in the fourth quarter and downtrading in the premium segment.”

Many brokerages are now expecting a turnaround in FMCG companies, driven by a better monsoon and a general revival in consumption demand in the economy.