With a few state elections and expected populist
budget, the rural sector is anticipated to be prime beneficiary. This,
coupled with improving macros and good monsoon after two consecutive
droughts, also augur well, said the report on the consumer good sector
brought by Edelweiss.
In the next 12 months, consumer goods companies would see a revival,
both in volume and margin terms, with an anticipated revival in the
rural sector, said a report.
With a few state elections and
expected populist budget, the rural sector is anticipated to be prime
beneficiary. This, coupled with improving macros and good monsoon after
two consecutive droughts, also augur well, said the report on the
consumer good sector brought by Edelweiss.
"After four quarters of
muted growth, the consumer goods sector is likely to clock high single
to low double digit volume growth in the October-December quarter of the
current fiscal, the report said.
Volumes of consumer goods companies, which rebounded
marginally from GST-related destocking in the July-September quarter of
current fiscal, are likely to see near normalcy, it added.
Rural markets are recovering, albeit at a slower pace, the report noted.
Gross
margin expansion will be soft since companies have hardly taken price
hikes and have in fact cut prices due to reduced GST rates, it added.
"Partially,
companies will start spending on advertising," the report noted.
However, cost rationalisation should aid EBITDA margin expansion.
The
report said the sector revenue growth will revive from the second half
of the current financial year. "With GST pangs largely behind, volumes
of most companies to clock high single to low double digit growth."
Paint
companies are likely to clock high single digit to low double digit
volume growth aided by demand levers as well as soft base, it said.
Prices
of raw materials like copra, monomers and menthol, among others, have
remained elevated. Prices of other raw materials like sugar, wheat flour
and milk have remained flat to slightly declining, the report said.
"To
offset rising raw material cost, companies have not been able to take
required price hikes, resulting in some gross margin compression. With
cost rationalisation, calibrated EBITDA margin expansion can be
expected," it noted.
09 Jan 2018, 01:13 PM