FMCG Q2 Results Preview: GST transition impact to hit volumes, margins; Nestle, their, tata consumer among the best choices

FMCG Q2 Results Preview: Consumer sector enterprises are expected to experience revenue and volume growth of 5% and 2% year-on-year (YOY) in Q2FY26, the domestic broker, Nuvama Institutional Equities, said in its consumer sector preview. This forecast stood as opposed to the previous quarters, where companies reported growth rates of 6% in turnover, 3% in EBITDA, and 3% in volume yoy in the first quarter FY26, as well as 5% in turnover, 2% in EBITDA, and 4% in volume yoy in Q2 FY25. The report further indicated that EBITDA is expected to remain flat compared to the previous year. Among Consumer Staples are the most important recommendations of the brokerage house Bikaji Foods, Britannia, Nestle, their and Tata Consumer; Among consumer discretionary, they also prefer Asian paint and united spirits. In his brokerage report, Nuvama said that the GST transitional challenges are likely to have a negative impact of 2-3% on volumes and sales, mostly due to delayed consumer purchases and the unwillingness of trading to keep more expensive stock. The majority of businesses have transferred the initial GST benefit to clients. There will be a negative transitional impact on working capital days, margins and volumes in Q2FY26 to deteriorate from November. “GST 2.0 Reforms will eventually help, led by price cuts in larger parcels and grammatical additions in smaller parcels. Rural demand remains resilient, supported by continuing government schemes and good rains in most parts (except Bihar). In our opinion, H2FY26 (from November) is likely to place the volume improvement for consumers.” It is difficult to deal with reverse duty arrangements. Packaging, any other RM and services are eligible for compensations (at the 18% GST rate). Input tax credit can be unused in many companies, as repayments are not allowed for services (A&P, leasing, logistics and services associated with outsourced sellers). In the end, businesses are likely to include it in their price. According to the analysis of the broker, shares in focus have negatively affected heavy rains in Q2FY26 categories, such as fizzy drinks, drinks, beer, ice and Hi. Impacts will be felt by Varun drinks, Emami, United Breweries, Dabur and GodreJ consumer. The demand for paint has also been affected, but it is likely to be restored in the coming quarters (delayed rather than lost). India is expected to experience a harsh winter (December 25 – February 26) because of the likelihood of La Niña (> 50%). The broker believes that although carbonated drinks and juices (VBL, Dabur) are experiencing problems, problems, skin care and immunity goods (they, Dabur and Emami) are likely to benefit. The moderate winter base of the previous year can help Q3FY26 growth for winter portfolios. According to the broker, tea prices (-15% yoy, +2% qoq) are also expected to remain stable, further strengthening the Tata consumer and their H2FY26 margins. Coffee is still at +45% yoy, which is good for the plantations of Tata consumer, but they and Nestle give a profit. Copra prices are still high. Palm oil prices rose a year -on -year of 7% and a quarter of 5% over quarter, which can put the pressure on Bikaji, Britannia, Nestle and Gopal snacks in Q3FY26 as they continue. Disclaimer: The views and recommendations above are those of individual analysts or brokerage companies, and not of currency. We advise investors to check with certified experts before making investment decisions.