A host of FMCG companies announced their Q3 earnings for FY20 suggesting moderate sales growth, but net profit growing in double digits for most of the FMCG companies. Despite liquidity constraint hangover and high retail inflation, the cut in corporate tax last year had a positive impact on the profit margins. Cigarettes-hotels-to-FMCG company ITC beat the market expectation by recording a huge 29% year-on-year profit growth for Q3FY20. Profit for the quarter stood at Rs 4,141 crore, increasing from Rs 3,209 crore for the corresponding period of last fiscal. This was due to tax expenses falling over 44% on the back of cut in corporate tax. Revenue growth was driven by broad-based growth across all the segments with cigarettes, FMCG, hotel, agri and paper businesses registering a growth of 5.3%, 3.5%, 21.1%, 10.4% and 0.8%, respectively. On the profitability front, the company’s operating margins improved by around 80 basis points to 37.4% for Q3-FY20 against 36.6% for Q3-FY19. The margins were aided by the cigarettes business on account of localisation of capsule filters and price hikes in select portfolio brands. Other FMCG companies also posted good results for Q3FY20 in line with analyst expectations. Dabur India posted in-line numbers for the quarter ended December 2019 with consolidated net profit rising 8.9% at Rs 400 crore compared to a profit of Rs 367 crore in the same quarter of last fiscal.

Godrej Consumer Products Ltd reported an over 5% increase in consolidated net profit at Rs 445 crore in the third quarter ended December, compared to net profit of Rs 423 crore in October-December quarter of last fiscal. On the other hand, Nestle Q3 net profit jumped 38% to Rs 473 crore against Rs 341 crore for the same period of last fiscal. Similarly, Britannia Industries reported a 23% year-on-year rise in its consolidated net profit to Rs 369 crore for the December quarter of the FY 2020 as against Rs 300 crore reported in the corresponding quarter of the previous financial year.

The ITC stock has taken a beating in the stock market recently with the share price falling from around Rs 250 to Rs 210. But fund managers and brokerage houses are positive on the ITC stock on the back of strong operating cash flows, continuous capacity expansion across businesses and a healthy balance sheet.

Analysts tracking the company and the FMCG sector are positive on ITC over the medium term horizon and expect it to touch the Rs 275 mark. There may be a hefty dividend and bonus issue on the cards too. Investors can accumulate the ITC stock for portfolio investment.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

 

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