Financials of Fast Moving Consumer Goods (FMCG) companies are likely to see a significant impact in the first quarter (April-June) of FY21 due to impact of the COVID-19 enforced lockdown on supply chain and manufacturing, according to brokerage firms.
Most brokerage houses expect cumulative sales decline of 20.5 percent YoY, EBITDA decline of 30.5 percent and PAT decline of 28.9 percent YoY in 1QFY21.
Result season began with Tata Consultancy Services on July 9.
Among FMCG companies, Britannia will be announcing its first quarter results for FY21 on July 17, ITC on July 24, Marico on July 27 Nestle on July 28, and Dabur on July 30.
Hindustan Unilever and Godrej Consumer Products are yet to disclose their result dates.
The lockdown which started on March 22, has been extended until July 31.
Delhi and Maharashtra are highly affected states with most number of COVID-19 cases.
Channel liquidity issues and urban slowdown, particularly in the discretionary categories, may led to sales decline of FMCG companies.
Brokerage houses said most companies in the sector have curtailed ad spend and new launches due to persisting weak demand.
Both these factors are likely to check what would otherwise have been a much sharper EBITDA margin decline given the plunge in sales YoY, significant downtrading, and lower premium and discretionary product sales due to pantry loading.
As per brokerage reports most companies have indicated that there will be stronger recovery in small towns and rural areas compared with metros that are experiencing a slow recovery due to higher number of Covid-19 cases.
According to a Q1 preview report from Motilal Oswal Financial Services, “In June 2020, near-normalcy was witnessed in several staples categories with some of the discretionary demand also surprisingly bouncing back in the month. However, whether this sustains given the worsening situation on the COVID front in several parts of the country – especially in large urban clusters – remains to be seen.”
Brokerage firm Emkay believes staples were less affected, with food companies outperforming due to higher in-home consumption during the lockdown period. Britannia and Nestle may be beneficiaries of this trend.
The brokerage house sees some players benefitting from higher usage hygiene/healthcare products while most affected by restrictions on manufacturing and sale of non-essential personal care products in April as well as slower recovery in consumer demand thereafter.
The lockdown impacted alcohol and cigarette categories as sales were lost for the entire April and some parts of May as well.
The lockdown which started from March 22 has been extended to July 31 to curb the spread of COVID-19 that includes restriction on flights and other transport across states of India.
Presently, with nearly 6.5 lakh cases and average 20,000 new cases added per day, the peak is expected to be around the corner.
Despite Unlock 1.0 that began in the second week of June, a majority of manufacturing facilities are still operating below optimum levels.
A key reason for under-utilisation of capacities is the unavailability of skilled workers.
The impact of lockdown was also evident in January-March results detailed by FMCG companies.
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