HDFC Securities forecasts 12% revenue growth for FMCG companies, but says margin stress may weigh on earnings. While topline expansion looks strong, raw material inflation remains a concern. The brokerage upgraded Nestle to Buy, but remains selective, preferring companies with strong execution like Godrej Consumer Products and Britannia for investors.

Across its coverage, HDFC Securities forecasts ~12% YoY revenue growth, with most companies likely to post double‑digit topline expansion. However, persistent raw material inflation is set to weigh on margins. ITC, Bikaji, and Gopal Snacks are likely to report YoY earnings declines, while HUL, Dabur, and Emami may deliver single‑digit earnings growth.

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HDFC Securities Institutional Equities

In this report, HDFC Securities believes that FMCG sector valuations continue to de‑rate amid weak earnings visibility and a waning moat. The brokerage maintains its 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, but margin delivery should remain muted, given inflationary pressures. With sustained cost headwinds, HDFC Securities may see growth moderation ahead, which alongside margin strain could stress FY27 earnings.

The brokerage remain selective, with preference for stronger execution-led names such as Godrej Consumer Products, Britannia, Emami Honasa, and Bikaji.

With sector-wide de‑rating, Nestle's valuation now appears more reasonable; hence the brokerage has upgraded the stock to Buy. Given prevailing headwinds, HDFC Securities has trimmed earnings estimates and valuations across its coverage and roll forward its target price from Jun‑27 to Sep‑27.

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Hdfc Sec Fmcg Q2 Preview.pdf

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