scorecardresearch

FMCG majors see a hit to margins because of soaring inflation

Godrej Consumer Products said in its Q2FY23 quarterly update: “On the profitability front, we expect a mid-teen decline in Ebitda. This is due to consumption of high cost materials, significant upfront marketing investments to drive category development, and a weak performance in Indonesia.”

FMCG majors see a hit to margins because of soaring inflation
“Urban markets were driven by modern trade and e-commerce, which saw double-digit growth. Rural markets witnessed some pressure in terms of liquidity,” Dabur India said.

High commodity prices continue to eat into the operating incomes of FMCG companies.

Dabur India on Thursday said the soaring inflation during the second quarter could lower its operating margin by around 150-200 basis points year-on-year. “During the quarter, inflation was at peak levels which impacted gross margins,” the consumer goods major said in a regulatory filing. In addition, the geopolitical situation continued to impact the business with unprecedented inflation during the quarter leading to weak demand trends across categories.

Marico expects gross margin to contract sequentially. Higher cost inventory consumption during the quarter, coupled with some currency depreciation across geographies, is expected to have some bearing on profitability, it said in its business update for the second quarter. However, the margins would remain higher y-o-y on a consolidated basis.

Godrej Consumer Products said in its Q2FY23 quarterly update: “On the profitability front, we expect a mid-teen decline in Ebitda. This is due to consumption of high cost materials, significant upfront marketing investments to drive category development, and a weak performance in Indonesia.”

Also Read: Microsoft survey: Indian SMBs report shortest average tenure, with only 38% in operation for 10 years

Volumes are also expected to remain in single-mid digit levels. While Marico expects its India business to post low single-digit volume growth, Godrej Consumer Products sees mid-single-digit volume drop during the quarter.

However, there was some respite during the quarter, for instance, copra prices were softer than expected, while edible and crude oil prices also corrected sequentially. Edible oil prices are likely to trend lower over the next few months, Marico said.

Rural markets continued to remain sluggish in the second quarter. Both Marico and Godrej Consumer Products have highlighted stress in rural demand which has witnessed slower growth compared to urban during the second quarter. With retail inflation holding firm, downtrading in rural was still prevalent during the quarter, while urban demand is being driven by premium discretionary segments.

“Urban markets were driven by modern trade and e-commerce, which saw double-digit growth. Rural markets witnessed some pressure in terms of liquidity,” Dabur India said.

Meanwhile, Titan Company witnessed healthy double-digit growth across most businesses with overall sales growing 18% y-o-y. Retail network continued the pace of expansion, adding 105 stores for the quarter, on a net basis. “The outlook for festive season from Navratri in end September 2022 continues to be optimistic and is visible in positive consumer sentiment across categories,” the company said in its business update.

However, higher crop realisations and the upcoming festive season should provide a fillip to overall sentiment, Marico said. Dabur India also expects that moderating inflation and festive season should support consumption growth in the second half of the fiscal.

“With the moderation in inflationary pressures due to correction in commodity prices, and the monsoon largely being on track, apart for a few states, we expect consumption to improve in the second half of the year,” said Godrej Consumer Products.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.