Impact of inflation and cost increase on FMCG companies

The gross margins of FMCG companies manufacturing daily-use goods are likely to decline during the October-December quarter. Operating profits of these companies are also expected to remain flat or decline significantly due to inflation, rising costs, and pricing measures. Many FMCG companies are expected to see low single digit revenue growth. A major reason for this is that due to the rising cost of products like copra, vegetable oil and palm oil in the December quarter, companies have opted to increase prices. Lower consumption due to food inflation has hit the urban market, while the rural market, which accounts for a little more than one-third of the total FMCG market, is in a relatively better position.

stock market crash

Share prices of major FMCG companies like HUL, ITC, and Tata Consumer have fallen during the September quarter.

concerns of companies

Companies like Dabur and Marico have shared their updates for the third quarter, in which analysts expect their volume growth to be in low single digits or flat. Dabur expects low single digit growth in the December quarter, and their operating profit may remain flat. “Inflationary pressures were witnessed in some segments, which were partially mitigated by technical price increases and cost efficiency measures,” Dabur said. Dabur’s major brands include Dabur Chyawanprash, Dabur Honey, and Vatika.

Grocery stores have faced pressure, while modern trade, e-commerce, and quick commerce continued to see strong growth.

Marico also confirmed a similar position and said the sector recorded sustained demand growth during the quarter. However, its operating profit will be quite low due to high production costs. Marico’s major brands include Saffola, Parachute, and Livon.

future prospects

According to Nuvama, urban demand remains challenging due to inflationary pressures, low wage growth, and high housing rental costs. The slowdown in the urban market may continue for the next two-three quarters, while some improvement is expected in the rural market.