Inflationary impact on FMCG price & margin to continue in Q2, to improve from 2nd half
Inflationary pressure on some raw material inputs for the FMCG industry is abating but the manufacturers expect its impact on price and margins to continue in the current quarter.
In the April-June quarter, listed FMCG companies including - HUL, ITC, Godrej Consumer Product, Nestle, Dabur and Britannia delivered mixed results, reporting an impact on their margins and mostly, a drop in volume in some categories.
FMCG companies also expect volume decline to continue on the rural side but see some stabilization in the business and recovery in demand, starting from the third quarter of FY23.
Companies such as Britannia Industries said that it has taken necessary price increases in Q1 which were not covering inflation at this point but a good part of this will be covered by the July-September quarter.
''We were not able to take the entire price increase during this quarter. We have taken some price increases in the first quarter and we will complete that in Q2 of this year," said Britannia Industries Managing Director Varun Berry during recent earnings while responding to a query on the near-term price increase.
In April-June, Britannia reported a 13.24 percent decline in consolidated net profit to Rs 335.74 crore while its sales were up 8.74 percent to Rs 3,700.96 crore.
''And second quarter, we will see margin compressions, but I think in the third quarter onwards when we lap over inflation of around 11%, 12% through the last year, we think that commodities will soften. And there will be a rollover price increase impact happening in the third quarter," he said.
So, the third and fourth quarters should see a bit of softening of inflation and price increases kicking in, and the margin protection happening in the second half of this fiscal, he added.
Dabur India has reported a marginal increase in its consolidated net profit to Rs 441.06 crore. Godrej Consumer Products Managing Director & CEO Sudhir Sitapati in its earning call said: ''With inflationary pressures abating we expect sharp margin recovery from H2.'' The Godrej group's FMCG arm had reported a decline of 16.56 percent of its consolidated net profit in Q1 to Rs 345.12 crore, however, its revenue from the sale of products was up 8.08 percent at Rs 3,094.3 crore.
EY India Leader- Consumer Products & Retail Angshuman Bhattacharya said, in the April-June quarter, inflation in key raw materials, and packing materials had put margins under pressure.
''FMCG companies seemed to have offset in the immediate term through cost management initiatives along with necessary price corrections. The last two quarters have witnessed an increase in input costs driven by global geopolitical dynamics and disrupted supply chains leading to increased prices in crude, key vegetable oils and derivatives," he said.
Marico, which owns brands like Saffola and Parachute said, in India, the FMCG sector witnessed a volume decline in Q1FY23 for the third quarter in a row and value growth continued to be price-led. Moreover rural was lagging behind urban.
In April-June quarter Marico''s revenue from the domestic market dropped 3.56 percent to Rs 1,921 crore.
''We hope to accelerate volume growth to our medium-term target levels in H2, provided inflation cools off and eases pressure on demand," it had said.
Edelweiss Financial Services Executive Director Abneesh Roy said for most categories of the FMCG industry, rural is growing slower or at par with urban.
''Historically rural has grown faster at 1.2 to 1.5x of urban," he said adding ''Downtrading being seen across the board" during the April-June.
Market leader HUL said in the June quarter markets have grown in mid-single digits driven by price growth.
''Inflation is still very much a concern, the market remains a concern. Those factors haven't gone away. The (FMCG) market volume growth remains minus 5 percent in the last three months. It hasn't gone away. It hasn't turned positive at all and the value growth is of course 7 percent. Primarily the growth has come out of the price growth," HUL MD & CEO Sanjeev Mehta had said in his earnings conference.
HUL has reported a 14 percent increase in net profit and income was up 20 percent at Rs 14,757 crore. This was mainly price driven.
According to HUL Looking ahead in the near-term growth will be priced led, as inflation continues to impact consumption. Despite the recent cooling of a few commodities, most of them remain significantly elevated versus the long-term averages, HUL had said.
According to Angshuman Bhattacharya, Companies in the coming quarters have to relook at their channel and business unit profitability, and work on stabilization of costs, while maintaining threshold investment levels in marketing and expansionary activity, to continue on a path of profitable growth.
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)