While volume recovery is underway, heavy promotional activity and deflation in the home care segment are seen as drags on profitability.
Volume growth returns, but pricing remains tepid
Most brokerages project underlying volume growth (UVG) at around 3% YoY, driven by improved grammage offerings in home care and a pick-up in rural demand.Phillip Capital expects the company’s volume-led strategy to boost home care volumes, although aggressive pricing interventions could weigh on value growth.
Kotak notes that demand conditions remain largely unchanged from the previous quarter, with rural demand continuing to outpace urban. It expects 3% UVG, led by food and beverages and a slight rebound in beauty and personal care (BPC), supported by price hikes in soaps.
Gross margins under pressure despite cost moderation
Despite some moderation in palm oil and soap noodle prices towards the end of the quarter, gross margins are expected to contract YoY.Nuvama sees gross margin falling 196 bps to 50%, while Kotak pegs it at 50.2%, citing higher promotions and an adverse product mix. Motilal Oswal echoes this view, flagging a 140 bps YoY erosion due to intensified consumer offers and calibrated pricing in key categories like skin cleansing and tea.
EBITDA margin squeeze amid elevated A&P spends
EBITDA margin is expected to remain within the company’s guided range of 22–23% but decline YoY. Analysts attribute this to stepped-up advertising and promotional (A&P) investments, trade discounts, and weaker operating leverage due to fixed cost pressures.
Kotak expects EBITDA margin at 22.4%, while Nuvama sees it slightly higher at 22.8%. Motilal Oswal also anticipates margin pressure, driven by higher A&P spends and a shift in the product portfolio mix.
PAT seen falling due to Minimalist acquisition payout
On the bottom line, the average expectation is a 1% YoY decline in net profit. Kotak and Nuvama note that the recent acquisition of Minimalist will impact other income, further pressuring net earnings beyond the EBITDA decline.
What to watch
Investors will focus on the management’s outlook for volume recovery, rural demand momentum, and inflationary trends in raw materials like PFAD.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)