At an aggregate level, FMCG growth will see a strong recovery not only from Q3 which was impacted by demonetisation but also from the levels seen in Q2. The key driver is the return of strong price growth compared to deflation in H1 FY17, while volume recovery will likely be more modest. Stark divergence is likely between companies based on wholesale contribution. We expect strong divergence in the revenue growth within the FMCG sector. The key factor here is the adverse impact of demonetisation on the wholesale channel. Some categories of wholesalers are yet to see a full return to normal operations which is impacting companies which have higher contribution of wholesale.
Marico, HUL, GCPL likely to see best growth recovery; Dabur, Colgate, Emami to be subdued: We expect Marico, HUL and GCPL to see the strongest recovery in growth as they have relatively lower contribution of wholesale. There are also specific factors like the copra cycle driven volume gain for Marico and high price growth for HUL and GCPL in soaps. For Colgate, Dabur and Emami wholesale contribution is 50%. Dabur also has relatively higher distributor stock levels which could see downstocking. Colgate has taken steep price hikes in the low unit packs which will have an adverse impact on volumes. Dabur and Emami are also likely to see sharp decline in the Middle East.
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