FMCG Players Expect Better Gross Margins By Q2FY23 YoY
As commodity prices hit record highs, major FMGC players including Parle Products, Godrej Consumer Products and Dabur expect demand to pick up in both rural and urban markets, helped by price stability.
Additionally, FMCG manufacturers can expect better gross margins by the last month of Q2FY23 on an annual basis, as there is a roughly two-month lag in their inventory coupled with contracts. eventually, experts say.
Commodity prices have now peaked and there has been a 15-20% decline from record high prices for most commodities, according to Mayank Shah, chief category manager at Parle Products.
“This has brought some respite to FMCG companies, whose margins have been affected by high inflation. reduction in packaging weight that was in sight. Despite the price hikes taken by FMCG companies, the total increase in input cost has not been taken into account,” Shah told PTI.
While commodity prices have seen a decline in recent days, they are still very high compared to a similar period last year, he said.
“Therefore, at best, we will not see any more price increases. Price stability will help market recovery, both urban and rural, as inflation and rising prices were a major concern,” Shah added. .
Expressing similar views, the chief executive of Edelweiss Financial Services, Abneesh Roy, said the price of crude oil was at its lowest in a month and the cost of packaging, which is an important raw material for all consumer companies, was tied to crude oil prices.
Asked about margin expansion, he said in Q2FY23 there will be some upside, not major as there is a 2-3 month lag given there will be stocks, futures . So a big expansion will happen at H2FY23.
“In Q2FY23, in the last month of September, we should start to see the benefits for companies like HUL, Britannia, Nestlé and GCPL as they use palm oil. For the rest of the companies, a further correction in crude oil price is important as it will benefit the cost of packaging,” added Roy.
Further, he said that the depreciation of the Indian rupee against the US dollar must also be taken into account as most of the raw materials are imported.
Godrej Consumer Products Ltd (GCPL), the FMCG arm of the Godrej Group, expects consumption and gross margins to recover in the next quarter.
“With inflationary pressures easing and a significant correction in palm oil derivatives and crude oil, which are some of our key commodities, we expect consumption and gross margins to recover in the next quarter. “said GCPL in its quarterly updates for Q1FY23.
GCPL owns brands such as Godrej No 1, Ezee, Good Knight, Cinthol, Hit and Protekt.
Similarly, Marico, which owns popular brands such as Saffola, Parachute, Kaya and Hair & Care, said prices for the main input, copra, remained weak during the quarter.
Additionally, edible oil and crude oil prices cooled somewhat towards the end of the first quarter of FY23, but the company consumed higher cost inventory during that quarter.
“We expect the operating margin to increase, leading to reasonable growth in operating profit on an annual basis. The effective tax rate (ETR) will be 250 to 300 basis points higher over the course of FY23 due to the expiration of tax benefits in one of the manufacturing units. As a result, net income growth is expected to be lower than operating income growth,” Marico said in his update. operating performance and demand trends observed during the quarter ended June 2022.
The company maintains its aspiration to deliver sustainable, profitable volume-led growth over the medium term, enabled by building the brand equity of its core franchises and scaling new growth engines, said Mario.
Another player, Dabur, said he continues to aim for above-industry growth from a medium to long-term perspective with “stable margins”, although there are near-term inflationary pressures.
“Despite high inflation and near-term consumer pressure, the company will continue to invest in strong brands, innovation, distribution expansion and a strong back-end that will help us generate sustainable growth. long-term business,” Dabur’s quarterly updates said.
Last week, major FMCG manufacturers in updates said the
the domestic FMCG industry continued to be “hard hit by inflation levels”, driving successive price increases as well as impacting volumes in the three months to June.