Whalesbook
Subdued Q3 Growth Expected
Emkay Global Financial Services anticipates a subdued December quarter for India's fast-moving consumer goods (FMCG) sector. Analysts forecast revenue growth of approximately 6% year-on-year, with Ebitda expansion around 7% for listed companies in Q3FY26. While headline growth may lack excitement, the sector anticipates recovery driven by multiple tailwinds in coming quarters.
Food Segments Lead Recovery
Food companies are expected to show stronger performance, bolstered by quicker inventory turnover and restocking. In contrast, the home and personal care segments face disruption from Goods and Services Tax (GST) changes implemented in October. This transition has slowed growth and limited immediate restocking as trade participants optimize investments.
Company Spotlights
Marico is anticipated to lead with robust 28% revenue growth, attributed to price increases. Britannia Industries, Nestlé India, Honasa Consumer, and Bikaji Foods are projected for low double-digit growth. ITC's cigarette business should see about 5% volume growth.
Margin Support from Lower Costs
Eeasing raw material costs, including palm oil, wheat, tea, and crude oil, are set to support gross margins. Analysts expect moderate Ebitda margin expansion for the FMCG universe. Britannia Industries, Marico, and Godrej Consumer Products (GCPL) are forecast to deliver mid-teen profit growth, while Honasa Consumer, Bikaji Foods, and Gopal Snacks could more than double profits year-on-year.
Execution is Key for Valuations
Emkay cautions that while tailwinds exist, muted innovation and execution challenges could hinder growth revival for major FMCG firms. Current valuations appear to price in medium-term positives, making accelerated growth critical. The firm favors GCPL, Marico, Bikaji Foods, and Emami. Target prices for Hindustan Unilever (HUL) and Bikaji Foods were trimmed by 5-8%.