Q1FY18: After demonetisation, GST transition will impact FMCG sectors volume, margins and earnings

Key Highlights: 

• FMCG's top-line to grow by just 2% in Q1FY18
• Volume growth to decline for HUL, ITC, Britanni, Nestle, Dabur and Colgate
• PAT and EBITDA of FMCG sector to see decline of 2% and 3% respectively

India Inc's first quarter ended June 30, 2017 results season has commenced and Bajaj Corp will lead the way for FMCG sector by announcing its financial performance on July 12, 2017.

Second half of FY17 was not good for FMCG sector as the high value noteban led to slowdown in their sales which later resulted in lower earnings.

Looks like after demonetisation, it would be GST transition that will impact this sector's earnings.

Analysts at Kotak Institutional Equities said, “We expect 1QFY18 to be a weak quarter dragged down by destocking impact on account of GST transition (especially in wholesale/CSD channel); most companies in our coverage (ex-retail) have lost 5-15 days of sales in June due to destocking.”

As per ICICI Securities, FMCG firms will see sales loss of 8 to 15 days during the quarter – which will lead to flat revenue.

Sanjay Manya and Tejashwini Kumari, analysts at ICICI Securities said, “Though large companies extended support to dealers throughout the transition phase, as per our channel checks, retailers remained skeptical. Hence, the offtake was not encouraging in the last 10-15 days of June.”

Kotak Research expects overall top-line of FMCG sector to grow by just 2%, while sees EBITDA and bottom-line declining by 3% and 2%, respectively. 

"Aggregate EBITDA margin is likely to contract 100 bps yoy dragged down by similar contraction in GMs and weak leverage; however, stringent cost control and cuts in A&SP (likely to be cut by 25 bps yoy) will negate negative leverage impact, " it said.