According to the report, 4Q FY25 is expected to be another weak quarter for staples, while discretionary consumption is holding up well.
FMCG firms are expected to register a 5 per cent rise in revenue with almost flat margin growth in the fourth quarter of fiscal 2024-25, according to a report from banking firm BNP Paribas India. The report also lowered the earnings estimates for FY26 for the companies under its coverage, except for Godrej Consumer Products and Emami.
However, it sees a "favourable base" in FY26 for the FMCG sector, helped by some near-term positives like the drop in crude price and positive trends for rural growth.
"We expect our FMCG coverage revenue growth to inch up slightly from 4 per cent in 3QFY25 to 5 per cent in 4QFY25, led by Marico, which should see strong revenue growth helped by commodity inflation, and recovery in growth for GCPL, led by its home care division," BNP Paribas said in its India Consumer Report – April 2025.
The inflationary pressure on most commodities continues to be high in Q4, hurting the margins of the companies, though prices for palm oil and tea have eased quarter on quarter.
According to the report, 4Q FY25 is expected to be another weak quarter for staples, while discretionary consumption is holding up well.
"However, we expect this to be offset by margin weakness, resulting in negative to flat year-on-year EBITDA growth for our coverage. We expect weak gross margins with declines for 9 of 10 companies in our coverage with raw material cost pressure primarily from agri commodities," it said.
Discretionary companies like Titan and Jubilant Foods should continue to outperform.
"We lower our FY26E earnings for 8 of 10 companies in our coverage, with marginal upgrades for GCPL and Emami. Our FY26E earnings are 1-8 per cent below consensus," the report said.
It expects "a 6-8 per cent recovery in revenue growth in FY26 with a slight improvement in EBITDA margins, while street estimates are building in a larger recovery".
The report covers listed entities, including HUL, Britannia, Dabur, ITC, Emami, Godrej Consumer, Marico, Nestle India, Jubilant Foods and Titan.
The report further said that rural growth recovered slightly, but urban mass consumption has slowed down.
"At the beginning of the year, the consumption sector's revenue growth was weak due to weakness in rural demand. Price cuts were also weighing on growth. In the subsequent quarters, rural growth recovered slightly, likely helped by the low base, a good monsoon, and high food prices," it said.
However, this was offset by weakness in urban demand.
"As a result, we expect most companies to end FY25 with low to mid-single digit revenue growth, well below what the commentary in the early part of the year indicates," it said.