Inflationary impact on FMCG price and margin will continue in Q2 and improve compared to H2
Inflationary pressure on some raw material inputs for the FMCG industry is easing, but manufacturers expect its impact on prices and margins to continue in the current quarter.
In the April to June quarter, listed FMCG companies including – HUL, ITC, Godrej Consumer Product, Nestle, Dabur and Britannia reported mixed results, reporting an impact on their margins and more importantly a decrease in volume in certain categories.
FMCG companies also expect the decline in volumes to continue in the rural sector, but see some stabilization in activity and a recovery in demand, starting in the third quarter of the financial year. 23.
Companies such as Britannia Industries said they took necessary price increases in the first quarter that really didn’t cover inflation at this point, but much of that will be covered by the July-September quarter.
“We weren’t able to take the full price increase in this quarter. We took some price increases in the first quarter and we’ll finish that in the second quarter of this year,” said the Britannia Industries chief executive Varun Berry at a recent earnings report while answering a question about near-term price increases.
In April-June, Britannia recorded a 13.24% drop in its consolidated net profit to Rs 335.74 crore while its sales increased by 8.74% to Rs 3,700.96 crore.
Asked about the inflationary scenario, Dabur India CEO Mohit Malhotra in his call with analysts after the results said inflation would not decline in the second quarter.
“And in the second quarter we’ll see some margin squeezes, but I think in the third quarter when we go over inflation around 11%, 12% over the last year, we think commodities And there will be a price reversal increase the impact that happens in the third quarter, he said.
Thus, the third and fourth quarters should see a slight slowdown in inflation and price increases and margin protection occur in the second half of this fiscal year, he added.
Dabur India reported a marginal increase in its consolidated net profit to Rs 441.06 crore. Godrej Consumer Products Managing Director and CEO Sudhir Sitapati said in his earnings call, “As inflationary pressures abate, we expect a strong recovery in margins from the second half of the year.”
Godrej Group’s FMCG arm had recorded a 16.56% drop in its consolidated net profit in the first quarter of Rs 345.12 crore, however, its revenue from product sales increased by 8.08% to 3 094.3 crore rupees.
Angshuman Bhattacharya, India’s consumer products and retail leader for EY, said that in the April-June quarter, inflation in key raw materials and packaging materials put margins under pressure.
“The FMCG companies appeared to have compensated in the immediate term with cost management initiatives as well as necessary pricing corrections. The past two quarters have witnessed rising input costs driven by global geopolitical and chain disrupted supply leading to higher prices of crude, key vegetable oils and derivatives, he said.
Marico, who owns brands like Saffola and Parachute, said India’s FMCG sector saw lower volumes in the first quarter of FY23 for the third consecutive quarter and growth in value continued to be driven by prices. Moreover, the rural was lagging behind the urban.
In the April to June quarter, Marico’s domestic revenue fell by 3.56% to Rs 1,921 crore.
“We expect to accelerate volume growth to our medium-term target levels in the second half, provided inflation cools and eases pressure on demand,” he said.
Edelweiss Financial Services chief executive Abneesh Roy said that for most FMCG industry categories, rural growth is slower or on par with urban.
“Rural has historically grown faster, at 1.2 to 1.5 times the urban rate,” he said, adding that “the downgrade was seen across the board from April through June. .
Market leader HUL said in the June quarter, markets grew mid-single digit, driven by price growth.
“Inflation is still a big concern, the market is still a concern. These factors have not gone away. Market volume growth (FMCG) still remains at minus 5% over the past three months. It has not turned positive at all, and the value growth is of course 7. The growth is mainly due to price growth, HUL Managing Director and CEO Sanjeev Mehta had said during his results conference.
HUL reported a 14% increase in its net profit and its revenue increased by 20% to Rs 14,757 crore. It was mainly price driven.
According to HUL, near-term growth will be price-led as inflation continues to impact consumption. Despite recent cooling in a few commodities, most remain significantly elevated relative to long-term averages, HUL had said.
According to Angshuman Bhattacharya, companies in the coming quarters need to review their channel and business unit profitability, work on stabilizing costs, while maintaining threshold levels of investment in marketing and expansion activity, to continue on the path of profitable growth.
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