Q2 earnings point to margin pressure

Furthermore, these figures show signs of a slowdown in consumer demand, especially in rural India.

Analysts said earnings for the September quarter so far have been mixed. A Mint analysis of 176 companies shows that adjusted net profit for lump-sum items rose 6.68% over the past three months, up from 2.54% in the June quarter. These companies’ net sales grew 9% in the second quarter of the fiscal year, down 2% in the past three months. Oil and gas, banks, financial services and insurance (BFSI) companies are not included in the analysis. Neeraj Chadavar, Head, Quantitative Equity Research, said, “Earnings so far have been a mixed bag, with IT reporting decent numbers, while margin pressure was visible in the consumer space with insufficient price growth commensurate with raw material inflation. ” Axis Securities.

He said the earnings of consumer firms are lower than expected and there are some signs of slowdown in rural consumption during the quarter.

“However, with strong festive demand and monsoon closing above average, it is likely to revive. We still have to see the demand trend moving forward, it is possible to increase the prices in some pockets to cover the cost. Price increases were observed in some categories, while the magnitude of the increase was not able to offset the input cost pressure. Most of the companies are meeting or exceeding the revenue expectations, while margins are witnessing huge disappointment on the operational front due to lower than expected margins.”

The input cost pressure will not go away anytime soon, hence there is a need for substantial price hikes to address the input cost pressure, and a sustained demand scenario is the major trend to see in the near term, he said.

Home goods maker Hindustan Unilever highlighted Nielsen data that showed rural sales for FMCG firms grew 2.5% in September from a year earlier in August. This was compared with a growth of 12.5% ​​in January-July. HUL’s rural segment sales slowed in the September quarter, while sales growth stood at 4%, analysts said, as it cut grammar while maintaining convenience price points, reflecting indirect product price increases.

HUL focused on increasing sales volume as a whole versus remaining competitive and growing market share.

Nomura said urban consumption has improved significantly due to the easing of restrictions. Since largely rural consumption dominates, Nomura believes that rural consumers feel the pinch of rising prices more than their urban counterparts, who are recovering in the lead-up to the reopening.

Nomura said prices of white goods and equipment have risen 10-15% over the past year, and unless prices of commodities, including oil, cool off, firms will need to take the risk of further increasing prices and declining demand. Or be faced with a difficult choice to bear. Margin pressure.

For Nestle India, Q2 gross margin was 55.7%, down 239 basis points and 130 bps, respectively, compared to a year ago due to rising raw material costs (edible oils and packaging materials). But that was partially offset by the better realization.

Raw material cost increased by 20.40% sequentially while total expenditure increased by 10.96%.

However, Amnish Aggarwal, Head of Research, Prabhudas Lilladher said that there is a good demand trend in the consumer segment. He believes the exception is HUL, which has indicated some moderation in rural demand in September.