Demand yet to improve, says FMCG major Emami

The company, which offers products ranging from healthcare to personal care, saw lower margins during Q1FY23

Demand yet to improve, says FMCG major Emami
During the second quarter of the last fiscal, sales growth was better for every FMCG manufacturer after a Covid-hit Q1FY22

FMCG major Emami said that the demand situation has not improved yet but overall the fast-moving consumer goods sector is doing “alright”.

“There has been a growth in demand for FMCG products, but it’s not as high as we would have liked,” Naresh Bhansali, CEO-finance, strategy and business development, Emami, told FE.

According to Bhansali, the inflationary impact on demand for FMCG products is still there in both rural and urban markets. “With a normal monsoon and the government taking initiatives, we expect the demand situation to improve in the medium term and see a reasonable growth in the ongoing second quarter,” he added.

Also Read: Emami announces Katrina Kaif as brand ambassador for its spice range

During the second quarter of the last fiscal, sales growth was better for every FMCG manufacturer after a Covid-hit Q1FY22. So, during Q2FY23, there would be a high base effect for the industry.

The company, which offers products ranging from healthcare to personal care, saw lower margins during Q1FY23 as unprecedented inflationary headwinds continued to impact the FMCG sector across urban and rural markets.

The company has taken many initiatives to boost sales in the rural segment despite a muted demand. It has been trying to increase penetration further in rural areas by widening distribution networks. The company said its rural penetration continued to progress steadily with project “Khoj”, which is being carried out in 13 states. “We are using analytics to understand product requirements in different areas of rural markets. We are continuing with LUPs (low unit pacts) for different products in rural areas,” Bhansali informed.

Also Read: Emami acquires Reckitt’s Dermicool

The company’s consolidated revenues grew 18% year-on-year to `778.29 crore in Q1FY23, but Ebidta rose a marginal 2% y-o-y to `173 crore due to inflationary pressures. Gross margins at 62.6% contracted by 340 basis points and net profit fell 6.56% y-o-y to `72.69 crore. The company expects its balm portfolio to do better in Q2 due to monsoon. But the third quarter is very crucial due to a good demand for its winter products.

Zandu Balm is India’s largest selling balm. And Mentho Plus Balm enjoys the largest market share (1 ml category) due to smaller SKUs and increased affordability, Emami said in its annual report for 2021-22. 

The company’s “Power Brands” are BoroPlus, Navratna, Zandu, Fair & Handsome and Kesh King. It acquired Dermicool, in the prickly heat powder and cool talc category, from consumer giant Reckitt in March this year.

“The acquisition will consolidate Emami’s leadership position within the category with a 45%+ market share,” the company said in its annual report.

On the outlook for FY23, the company said it will drill deeper into existing geographies by strengthening its “Khoj” initiative and bolstering urban segment

via Project Sirius, while extending into existing pharmacies and prominent retail formats. Emami moved its distribution model from wholesalers to direct reach.

“The advantages were evident: If the company accessed consumers directly, it would be quicker, lower in cost, enjoying a superior insight into ground

realities. This would enhance its direct understanding of consumer preferences,” its said in the annual report.

Between 2016 and 2022, the company increased its direct access by 47% to 0.94 million outlets, making it possible to use its data analytics to comprehend the pockets in which its products were moving faster, the sales outlets that were driving offtake better and its capacity to understand the reasons why consumers were preferring to buy its products over competing alternatives.

With prices of raw materials like crude oil and vegetable oils cooling off now, Emami expects to realise greater benefits from the lower raw material costs in the third quarter compared with the ongoing second quarter. “The increase in input costs is coming down. The impact will be seen in the ongoing quarter. And in the next quarter, it will be more visible,” Bhansali said.

“Margin contraction during the first quarter was mainly because of the increase in material costs due to high inflation,” Bhansali said, adding that in the subsequent quarters, the cost increase for the company would be less, and thus, Ebidta margin would improve. The company expects pressure on its margins to ease from the second half of FY23. During an investors’ conference call after declaring Q1 results, director Mohan Goenka said the company still saw pressure on margins in Q2 because the stocks of raw materials that it had bought were at a higher cost. “So, maybe Q2 would be under a little pressure, but it would definitely ease in the second half,” Goenka added.

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