Q2FY23 appears to be mixed for different FMCG players

The second quarter of the fiscal year 2023 is expected to see a resurgence in demand as commodity prices are reaching their peak. Market recovery is anticipated by FMCG producers in both urban and rural areas. According to experts, the FMCG manufacturers should anticipate higher gross margins by the last month of Q2FY23 compared to the same period last year because of a two-month lag in their inventory and forwarding agreements.

Along with the current and impending holiday season, which has already begun, a few FMCG companies have begun providing updates for the forthcoming Q2FY23 season, which will begin the following week. With this let’s look at the Q2 FY23 prospects of Avenue Supermart & Marico Ltd, which recently announced updates on the upcoming results.

Avenue Supermarts result update translates into robust future growth prospects

Avenue Supermarts, more commonly known as DMart, on October 3 announced a standalone revenue from operations of Rs 10,385 crore for the quarter ended September 30, 2022, an increase of 35.8% over the same time last year.

The standalone revenue in Q2FY23 has nearly doubled when compared to the pre-pandemic period of Q2FY20, when it was reported to be Rs 5,949.01 crore. In Q2FY21 and Q2FY22, the company had reported a standalone revenue of Rs 5,218.15 crore and Rs 7,649.64 crore, respectively. The total number of D-Mart stores as of September 30, 2022, stood at 302, Avenue Supermarts informed the stock exchanges in a regulatory filing.

Avenue Supermarts’ standalone profit increased from Rs 115 crores in Q1FY22 to Rs 680 crores in Q1FY23. The profit has increased sequentially by almost 46%. Standalone operating revenue for the Q1FY23 increased by 95% YoY to Rs 9,807 crore. Revenue growth on a sequential basis was 14%.

Nevertheless, DMart shares saw double-digit rise in the Q1FY23. Prabhudas Lilladher analysts have given DMart stock a “buy” recommendation in anticipation of the retailer experiencing enormous runaway growth and having a high potential to open 1500 locations.

Shares of Avenue Supermarts gained 4% today and have been gaining for the last three sessions. While stock appears to be one of the most preferred pick in the long term, existing investors should stay invested while fresh ones can consider making entry in this Q2FY23 results season, followed by first healthy festive season post covid.

You may also like: NIFTY FMCG sector grew 17% post Q1FY23

Marico Ltd to post low single growth in Q2FY23

FMCG company Marico had low single-digit volume increase in the Q2FY23, the company announced on Monday. In a quarterly update, the company said that over the majority of the Q2, demand sentiment in India trended along similar lines as the prior quarter, with some signs of improvement in the last month. Even while the brand showed positive trends towards the end of the quarter helped by the enhanced value offer in the current soft copra price environment, the company’s flagship Parachute coconut oil nevertheless had a low single-digit volume loss.

According to the company, Premium Personal Care kept up its positive pace while Foods experienced growth in the mid-twenties with a strong performance across the board. Double-digit constant currency growth was produced by the international business, which continued its robust trend. Despite global macroeconomic and geopolitical uncertainty, each market made a positive contribution.

On a YoY basis, total revenue for the quarter increased by a low single digit percentage. Sharp currency depreciation was experienced in some of the regions, and it is anticipated that this will have some impact on profitability. As a result, it is anticipated that gross margin will decrease sequentially but increase on an annual basis.

Last but not least, the company stated that given retail inflation is anticipated to cool off as an outcome of government interventions, moderating commodity inflation pressures, and reasonably healthy spatial distribution of monsoons, consumption trends should improve in the second half of the fiscal. The approaching festive season and higher crop realisations could further boost mood generally.

Yesterday, Marico’s shares were seen underperforming the benchmark indices, as it fell by around 2.18% while NIFTY50 rose more than 1% intra-day. The reason for such fall in Marico’s share price is the dismal Q2FY23 update, as investors were expecting much better margins with easing inflation. Therefore, the share price of Marico ended in red. While in a longer horizon, share price can be seen consolidating in a sideways trend with 540 acting as resistance with 475 as immediate support. So, for it to become a possible investment trade card over Univest App, it should either cross resistance, or post better than expected results going forward.

According to Nirmal Bang Institutional Equities, the drivers for growth in Marico’s VAHO portfolio are aggressive involvement at the bottom-of-the-pyramid segment, increased growth in the mid-segment, and share increases in the premium segment.

Our View

Despite a recent decline in commodity prices, they are still relatively high when compared to the same time last year. The businesses also do not anticipate any further pricing increases. Since inflation and price increases were a key issue, the price stability will hence aid in the revival of the market, both urban and rural.

Abneesh Roy, Executive Director of Edelweiss Financial Services, has made similar claims, claiming that the price of crude oil had fallen to its lowest level in a month. “Despite a 2-3 month lag caused by inventories and forward contracts, there will be some advantage in Q2FY23, though it won’t be much. H2FY23 will experience strong growth as a result.”

While we have a mixed set of updates as we get into the results season, the FMCG sector is one to watch out for as this is the first time after two years, that the festive demand is expected to bounce back after two subdued years due to the pandemic.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

You may also like: Electronics Mart India IPO