FMCG There is a possibility of a decline in the gross margins of companies during the October-December quarter. According to experts, sales of these companies will be affected due to high inflation, higher input costs and pricing measures. Apart from this, the operating profit of these companies may also remain quite low or stable. Many FMCG companies are expected to see low single digit growth in revenue. One reason for this could be that many companies have opted to increase prices in the December quarter due to rising costs of products like copra, vegetable oil and palm oil.
The price hike comes at a time when lower consumption due to high food inflation has hit the urban market. However, the rural market, which accounts for a little more than one-third of the total FMCG market, has been ahead.
Dabur’s business update
Some listed FMCG companies like Dabur and Marico have released their business updates for the third quarter of the current financial year. Based on this, analysts have expected flat or low single digit volume growth in these companies. Dabur expects ‘low single-digit growth’ in the December quarter. During this period, the operating profit of the company may remain stable. “Inflationary pressures were witnessed in some segments, which were partially mitigated by technical price increases and cost efficiency measures,” Dabur said.
The company said that rural consumption remained better for the FMCG sector in the third quarter and it grew faster than the urban sector. The company has brands like Dabur Chyawanprash, Dabur Honey, Dabur Pudinahara, Dabur Lal Tel, Dabur Amla, Dabur Red Paste, Real and Vatika. The company said alternative channels such as modern trade, e-commerce and quick commerce continued strong growth. General trade, which mainly includes street grocery shops, faced pressure during the quarter.
This is Marico’s opinion
Marico also expressed similar views, saying that the sector has recorded sustained demand growth during the quarter. Rural consumption has improved during this period, while urban sentiment has remained stable compared to the previous quarter. On sales in the domestic market, Marico said it expects some growth in the December quarter on a quarter-on-quarter basis. However, due to high production costs, its operating profit will be quite low. Marico owns brands like Saffola, Parachute, Hair & Care, Nihar and Livon.
According to Nuvama, urban demand remains challenging due to inflationary pressures, low wage growth and higher housing rental costs. The company said that the slowdown in the urban market will continue for two-three more quarters. However, there will be some improvement in the rural market and it will be better than urban demand.
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