Indian Consumer Goods Companies Set for Muted Q2 Results Amid Slow Demand, High Inflation

Major Indian consumer packaged goods (CPG) companies are expected to report muted growth for the September quarter amid slowing demand, particularly in rural areas, and persistent high inflation, according to research reports from leading brokerages.

Demand, Volume and Revenue Growth

Brokerages forecast muted revenue growth for consumer packaged goods (CPG) companies in Q2FY24 amid slowing demand and high inflation. Rural demand continues to be subdued due to high food inflation, uneven monsoon rains and reduced purchasing power.

HDFC Securities predicts its CPG coverage universe to report 6-10% year-on-year revenue growth in Q2FY24, driven more by price hikes than volume growth. It expects continued weakness in demand in lower income states like Uttar Pradesh, Madhya Pradesh, Bihar and Jharkhand which have per capita income below $1,000.

Centrum Broking forecasts 6.6% year-on-year revenue growth for its staples coverage universe in Q2FY24. It cautions that the current quarter has not seen much improvement in rural demand due to volatile monsoons and high food inflation across the country.

PhillipCapital expects 9% year-on-year revenue growth for its consumer coverage universe in Q2FY24, driven more by volumes than price hikes. It sees steady urban demand and hopes for rural recovery in the second half of FY24. However, the current quarter has not seen a pickup in rural sales.

Key volume growth projections:

  • ITC: 5% cigarette volume growth
  • HUL: 3-6% volume growth
  • Nestle India: 5% domestic volume growth
  • Asian Paints: 10% volume growth
  • Britannia: 4% volume growth
  • Dabur: 3-4% volume growth
  • Marico: Flat volumes

Food and cigarette companies like ITC, Nestle and Britannia are expected to outperform in volumes over home and personal care companies like HUL, Dabur and Marico. The brokerages see potential for positive surprises in the volumes performance of foods companies Nestle, ITC and Britannia based on current growth trends.

However, home and personal care categories like hair oils, skincare and oral care may report relatively weaker volume growth due to high inflation and competitive intensity. Discretionary and out-of-home consumption has also been impacted.

Centrum Broking analysis shows continued weakness in demand across lower-income states like Madhya Pradesh, Uttar Pradesh, West Bengal, Bihar and Jharkhand which have per capita income below $1,000. The affordable end of the market has been most affected.

Urban demand is expected to be relatively resilient with steady growth across modern trade and e-commerce channels. But general trade channel is seeing some inventory build-up indicating weaker offtake.

Overall, the brokerages caution that the expected recovery in rural demand has not played out so far in Q2FY24 due to the volatile monsoon in many parts of the country and unrelenting food inflation impacting purchasing power. The uneven spatial distribution of rains has also impacted agricultural output in some states. This poses risks to the outlook for rural recovery.

Margins and Profits

Gross margins are set to improve sequentially for most CPG players in Q2FY24 due to softening commodity prices. However, operating margin expansion will be limited due to increased ad spends.

HDFC Securities expects 150-200 basis points gross margin expansion for ITC, Dabur and Britannia. For HUL, it sees gross margin improving by 300-400 basis points.

PhillipCapital forecasts 400-500 basis points gross margin expansion for Asian Paints. Marico’s gross margin could expand 450-500 basis points.

However, EBITDA growth will be slower than gross margin growth as companies increase ad spends to revive demand. HDFC Securities sees EBITDA growth of 6-8% for HUL, 7-15% for ITC and 8-10% for Dabur India.

Most companies are investing a portion of the gross margin gains towards higher advertising and sales promotion expenses to drive volumes and combat competition. This will result in muted operating margin expansion compared to the growth in gross margins.

Future Outlook

The brokerages believe operating conditions will remain challenging for CPG companies in the near term amid uneven demand recovery and input cost pressures.

Key risks are competitive intensity if commodity prices rise again, and the pace of rural recovery amid high inflation and uneven rains.

While urban demand is expected to remain steady, recovery in rural markets will be gradual. Low income consumers remain the most impacted.

Companies are cautiously optimistic of a pickup in growth, led by festive season demand and improvement in consumer sentiment. But visibility remains limited.

Margin outlook will depend on commodity prices and currency fluctuations. Sudden spikes in input costs or currency volatility pose risks, especially for companies like HUL, Marico and Dabur with meaningful exports.

While Q2 is expected to be muted, brokerages hope rural recovery and margin gains will aid CPG stocks in the short term. But valuation multiples may not expand much.

HDFC Securities notes that visibility on earnings improvement, gradual rural pickup and margin expansion will continue to support FMCG stocks in the near term. However, valuation multiples are unlikely to expand much further.

PhillipCapital also warns that key risks for further margin recovery are high competitive intensity if raw material prices rise again, and the pace of rural recovery amid high inflation and uneven rainfall in the country.

Overall, India’s leading CPG companies face an environment of slowing demand, particularly in rural markets, and input cost inflation that continues to remain elevated compared to historical levels despite some moderation. This will keep growth muted in the near term.

While urban demand has shown some resilience, the weak rural economy poses a risk to volume recovery. Quarterly performance will depend on monsoons, crop harvests, commodity price movements and currency fluctuations.

Companies are hoping government measures to support rural incomes, moderating inflation, good festive season and new product launches will help drive a gradual recovery in consumption over the next few quarters. But the outlook remains uncertain.


  • Cigarette volume growth around 5%
  • Revenue growth of 5-9% driven by cigarettes and FMCG
  • Gross margin expansion of 150-200 basis points (bps)
  • EBITDA growth of 7-15%


  • Volume growth around 3-6%
  • Revenue growth of 3-6%
  • Gross margin improvement of 300-400 bps
  • EBITDA growth of 6-8%

Nestle India

  • Domestic sales growth of 10-12% led by volume growth of 5%
  • EBITDA growth of 15-20%
  • PAT growth of 15-25%

Asian Paints

  • Volume growth around 10%
  • Revenue growth of 7-10%
  • Gross margin expansion of 400-500 bps
  • EBITDA growth of 35-45%


  • Volume growth flat
  • Revenue decline of 0-1%
  • Gross margin improvement of 450-500 bps
  • EBITDA growth of 10-12%

Britannia Industries

  • Volume growth around 4%
  • Revenue growth of 7-8%
  • Gross margin expansion of 150-200 bps
  • EBITDA growth of 10-15%

Dabur India

  • Volume growth of 3-4%
  • Revenue growth of 7-9%
  • Gross margin expansion of 150-200 bps
  • EBITDA growth of 8-10%