Indian FMCG companies are set for a mixed Q2FY27 earnings season, with a softer year-ago base and selective price hikes expected to support topline growth. However, persistent raw-material inflation is likely to keep margins under pressure, making earnings delivery crucial for stock valuations.
Domestic brokerage house HDFC Securities, in its Q2FY27 earnings preview for the FMCG sector, maintained an underweight stance, saying the sector continues to face weak earnings visibility and a waning competitive moat. The brokerage expects revenue growth to improve in the September quarter but remains selective in its stock preferences.
“FMCG sector valuations continue to de-rate amid weak earnings visibility and a waning moat. We maintain our underweight stance and see performance improvement as critical for valuation. Q2 topline is likely to be stronger on a low base and incremental price hikes,” said HDFC Securities.
Why HDFC Securities is selective on FMCG stocks?
The brokerage expects revenue growth across its coverage to improve in Q2FY27, helped by a softer base and price increases that partially offset inflation. It forecasts around 12% YoY revenue growth across the companies covered, with most expected to report double-digit topline growth.
However, the improvement in revenue is unlikely to translate uniformly into earnings. Persistent raw-material inflation is expected to weigh on margins. ITC, Bikaji Foods and Gopal Snacks are expected to report YoY earnings declines, while HUL, Dabur and Emami could deliver single-digit earnings growth.
In contrast, Nestlé India, Marico, Colgate-Palmolive and Honasa Consumer are expected to post stronger earnings momentum, aided by margin expansion.
“We see revenue growth in Q2FY27E to improve versus recent quarters, supported by a softer base and selective price increases that partially offset inflationary pressures. Across our coverage, we forecast ~12% YoY revenue growth, with most companies likely to post double-digit topline expansion,” stated the brokerage
It pointed out that the festive quarter commentary would be particularly important in determining the earnings trajectory ahead. Any moderation in demand alongside sustained inflation could put further pressure on earnings.
Against this backdrop, the brokerage prefers companies with stronger execution. Its preferred names are Nestlé India, Godrej Consumer Products, Britannia Industries, Honasa Consumer, Emami and Bikaji Foods. It also upgraded Nestlé India to BUY, arguing that its valuation had become more reasonable following the broader FMCG sector de-rating.
Q2FY27 estimates, target prices: Nestlé, Britannia, Emami, Bikaji
Nestlé India has a target price of ₹1,555, implying 19% upside from the CMP of ₹1,308. It expects Q2 revenue to grow 21%, EBITDA 30% and adjusted PAT 37%.
Britannia Industries has a target of ₹6,000, implying 26% upside. Revenue is expected to rise 12%, while EBITDA and adjusted PAT are seen growing 6% and 10%, respectively.
Godrej Consumer Products has a target price of ₹1,000, implying 19% upside, with revenue, EBITDA and adjusted PAT expected to increase 18%, 14% and 10%.
Emami has a target of ₹500, implying 34% upside. HSIE expects revenue to rise 20%, although EBITDA and adjusted PAT growth are forecast at only 7% and 4%.
Bikaji Foods has a target price of ₹700, implying 39% upside, the highest among HDFC Securities’ preferred FMCG names. However, adjusted PAT is expected to decline 15% in Q2FY27.
Honasa Consumer has a target of ₹550, implying 28% upside, with revenue, EBITDA and adjusted PAT expected to grow 28%, 72% and 68%.
Among the other covered stocks, ITC has a ₹300 target and 17% upside, although adjusted PAT is expected to fall 24%. HUL has a ₹1,925 target and 5% upside, while Marico has a ₹925 target and 11% upside. Dabur has a ₹425 target and 14% upside, while Colgate-Palmolive has a ₹1,800 target and just 4% upside.
“Against this backdrop, our stance remains selective, with preference for stronger execution-led players. We now favor Nestlé India, Godrej Consumer, Britannia, Honasa Consumer, Emami, and Bikaji.” — HSIE Research
Overall, HSIE expects Q2FY27 to offer better topline growth for FMCG companies, but believes margins and earnings will remain the key differentiators for investors.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
