Share Market Investment - FMCG Earnings Preview: Motilal Oswal projects solid growth in Q1FY25; lists HUL, GCPL, and Dabur as top picks

Top picks for the June quarter earnings season include Hindustan Unilever, Godrej Consumer, and Dabur in the FMCG space. MOFSL expects steady volume recovery and improved profitability metrics for its coverage universe in 1QFY25.

In the first quarter of FY25 (Q1FY25), companies within the Motilal Oswal Financial Services Limited (MOFSL) coverage universe are poised to showcase robust performance, driven by resilient demand trends and strategic initiatives across various sectors.

MOFSL forecasts a notable year-on-year growth in revenue and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for its coverage universe. Revenue is anticipated to grow by 7.8 percent, reflecting steady consumer demand and strategic pricing maneuvers. EBITDA is expected to follow suit with a growth projection of 9.2 percent, underscoring improved operational efficiencies and cost management across sectors.

The brokerage has picked Hindustan Unilever, Godrej Consumer, and Dabur in the FMCG space as its top picks for the June quarter earnings season. It expects Emami, GCPL, Britannia, and United Breweries to be key outliers in this earnings season.

As companies navigate through evolving market dynamics and consumer preferences, the focus remains on sustaining growth momentum through innovative strategies and operational efficiencies. With expectations set for steady volume recovery and improved profitability metrics, the outlook for the MOFSL coverage universe in 1QFY25 remains optimistic, contingent on continued macroeconomic stability and supportive policy measures.

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Sectoral Performance Highlights

FMCG Sector: Amidst steady macroeconomic conditions and aggressive marketing strategies, FMCG companies are expected to achieve mid to high single-digit volume growth in FY25, said the brokerage. Initiatives such as distribution expansion and product relaunches are set to drive this growth, with paints and adhesive segments leading the charge with high single-digit to double-digit volume growth, it added.

Cigarette Segment: After a period of subdued demand, the cigarette segment shows signs of recovery with an expected 2–3 percent volume growth, predicted MOFSL.

Alcohol Beverages: Hindered by election-related restrictions and supply-side challenges, MOFSL expects the alcohol beverages sector to have a moderate 4 percent volume growth in UNSP (United Spirits) and a more robust 11 percent growth in UBBL (United Breweries).

Pricing

While companies have implemented price cuts and consumer-centric offers to stimulate demand, selective price hikes in categories like HPC (Home and Personal Care) are anticipated. This strategic pricing approach is likely to result in revenue growth outpacing volume growth for certain firms, noted the brokerage.

Margin Expectations

According to MOFSL, gross margins are expected to see gradual improvement, albeit at a slower pace compared to previous quarters. Elevated overhead expenses related to distribution and marketing efforts are anticipated, although most companies are expected to achieve some improvement in EBITDA margins.

Top Picks

HUL: MOFSL believes that volume growth has bottomed out and that a gradual volume recovery is expected in FY25. HUL’s wide product range and presence across price segments should help the company achieve steady growth during the recovery period. Parts of the BPC (beauty and personal care) and F&R (foods and refreshments) have a turnaround scope. The valuation at 47x FY26E EPS is reasonable given its last five-year average P/E of 60x on one-year forward earnings, said the brokerage.

GCPL: GCPL is consistently working to expand the total addressable market for its India business through product innovations to drive frequency. Besides, there has been a consistent effort to address the gaps in profitability and growth in its international business. MOFSL sees margin headroom from the RCCL (Raymond Consumer Care) and Indonesia businesses. The valuation is expensive, but earnings are expected to outperform peers, it forecasts.

Dabur: As per the brokerage, the recovery in rural markets should support its portfolio, as it is heavily skewed toward rural areas. In the domestic business, it expects the healthcare, oral care, and food businesses to grow faster than others. The distribution drive will further contribute to rural growth. EBITDA margin has remained in the range of 19–20 percent for the past several years. The margin is expected to improve in the coming years due to a better mix of products (such as higher healthcare offerings) and increased pricing in high market-share brands, believes MOFSL.

In summary, MOFSL’s coverage universe is primed to deliver resilient revenue and EBITDA growth in the first quarter of FY25, underpinned by sectoral resilience and strategic initiatives aimed at driving sustainable growth in a dynamic market environment.

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