Q3FY24 Review: FMCG: F&B companies outperform HPC companies

21 Feb 2024 , 11:17 AM

The aggregate revenue/Ebitda/Pat grew by 3.6%/4.2%/7.6% driven by a mix of volume and pricing growth. Excluding ITC, the revenue grew by 4.3%. The aggregate gross margins expanded by 236bps on account of moderation in the raw materials (~30bps sequential GM expansion). The F&B companies yet again outperformed the HPC companies. Mrs Bector’s Food (MBFSL) and Varun Beverages (VBL) reported a strong top-line growth of ~17%/21% respectively, whereas Bikaji Foods (aided by seasonality shift in Q3FY24) reported a sales growth of ~23% (14% for M9FY24). Analysts of IIFL Capital Services prefer MBFSL, VBL, United Spirits, Bikaji, GCPL and Sula. 

3.6% sales growth:

The aggregate revenues grew by 3.6% vs analysts of IIFL Capital Services estimate of ~5% and the sales growth was driven by a mix of volume and pricing growth. The Food & Beverage companies reported an aggregate sales growth of 8.8% vs 1.3% aggregate sales growth reported by the HPC companies. Though there were some green shoots visible in the overall consumption pattern on account of a long festive season in Q3FY24, the rural demand remained subdued. MBFSL and VBL reported a strong sales growth of ~17%/21% respectively. Due to the delayed onset of winters, the winter dependent portfolio in case of Emami reported a sales decline of 9% whereas health supplements in case of Dabur reported a flat sales growth. 

Gross margins expand on the back of benign commodity prices: 

The aggregate GM expanded by 236bps YoY (30bps QoQ) on account of moderation in RM prices. The companies which witnessed the highest YoY GM expansion were Colgate (639bps), Marico (634bps), Jyothy Labs (666bps) and GCPL (472bps). Sector Ebitda performance: The aggregate Ebitda grew by 4.2% (IIFLe 4.9%) and the aggregate Ebitda margin expanded by ~20bps. Companies continued to invest behind their brands as this quarter marked ~26% YoY rise in ad-spends. The companies which reported a strong Ebitda growths were Colgate (~30%), JYL (~41%), VBL (36%), UNSP (~34%) and Bikaji (~36%). 

Road ahead: 

The rural demand sentiment is likely to improve on the back of moderation in inflation and increased government expenditure on infrastructure (especially the rural infrastructure). The softening of commodity prices and price hikes taken in the past quarters have led to YoY as well as sequential improvement in margins. However, from here-on, the margin expansion is expected to be at a slower pace and will be driven by superior product mix and operating leverage. While the mass-end segments are expected to struggle (due to increased competitive intensity), the companies are looking for premiumising their product portfolio. Analysts of IIFL Capital Services prefer MBFSL, VBL, United Spirits, Bikaji, GCPL and Sula.