Consumer goods companies warn of pressure on margins

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Consumer goods companies have warned of pressure on margins and expect profitability to fall year over year due to rising input costs despite rising prices of their products. The costs of crude oil, palm oil and packaging have more than doubled in the past year. Most companies have increased their prices by 10-15% in the past two quarters, which has not fully offset soaring raw material costs.

“Costs have even gone up for packaging materials, labor and freight. Consumption and input costs remain under pressure, ”said Angshu Mallick, managing director of Adani Wilmar, who sells the edible oil brand Fortune. “There is still a 15-18% increase in the overall cost of inputs after taking into account the 25-30% drop in edible oil prices globally. ”

Last month, the company slashed prices by 15% to pass on the benefits of a reduction in import duties on edible oil from a peak of 38.5% to 5%.

“Since the demand environment, especially in rural areas, does not appear to be as buoyant as it was previously perceived, sustained commodity inflation would not be good news as it may require new ones. selling price adjustments, which would be more difficult to absorb in an environment of weak demand, ”a report from JM Financial said.

Aggregate gross margins of the top nine consumer goods companies fell 447 basis points in the second quarter, the third consecutive quarterly decline, the statement said. One basis point is 0.01 percentage point.

“We expect the gross margin to improve sequentially, but remain lower year over year. The operating margin should be close to the levels of the previous quarter,” Marico said in his update quarterly earlier this week.

Businesses and analysts expect revenue to be largely price-driven in the quarter ended December after aggressive price hikes and weight cuts, affecting volumes or the actual number of products that people put in their basket.

Godrej Consumer Products said in his investor update Thursday that he could generate near-high-digit sales growth, largely price-driven.

“On a profitability front, we expect the quality of our earnings to improve with sequentially expanding gross margins, however (these will be) lower year over year due to unprecedented cost inflation, ”GCPL said.

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