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FMCG sector's headline growth to drop in Q4 2018, says Credit Suisse

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Fourth quarter earnings will be higher Q-o-Q for Nestle, Britannia and Hindustan Unilever Limited while it will be muted for Godrej, Marico, Emami and Dabur, according to CS.

FMCG sector's headline growth to drop in Q4 2018, says Credit Suisse
Headline growth in fast moving consumer goods (FMCG) sector is expected to fall for fourth quarter earnings of 2018, given the base is normalized in the fourth quarter 2017, post the demonetization, Credit Suisse said in a note.
Fourth quarter earnings will be higher than the previous quarter for Nestle, Britannia and Hindustan Unilever Limited while it will be muted for Godrej, Marico, Emami and Dabur, the Swiss investment bank said.
“The headline growth is expected to drop to 9% in 4Q18, from about 17% in 3Q18. All quarters since 3Q FY17 have seen impact from one-offs like demonetisation, GST destocking and post GST restocking,” the bank said.
The base for volume is varied in the fourth quarter, with Marico recording about  10% volume growth, and Colgate posting about 3% fall in volumes; thus, the headline growth needs to be seen in context, Credit Suisse added.
The bank expects the 2-year volume compound annual growth rate (CAGR) numbers to pick up from about 3-4% to 4-5% in the upcoming quarter.
Compound annual growth rate (CAGR) is the mean annual growth rate of an investment which would have grown in a specific period of time, if it had grown at a steady rate.
However, underlying trends will see a modest pickup, with home and personal care companies facing rising input costs. Food input costs, however, are declining, the bank said.
“The spike in crude oil prices will now start impacting costs. Menthol has also seen a spike recently, which may impact companies like Emami and Colgate in 4Q. Marico is the only company facing severe input cost inflation. On the food side, the input costs are starting to trend down,” Credit Suisse said.
The bank has exempted cigarettes from the list of FMCG goods while considering the numbers for the headline growth.
Let’s take a look at the forecasts given by Credit Suisse on these particular FMCG companies:
Hindustan Unilever Limited:
Godrej:
Marico:
Colgate-Palmolive:
Nestle: