MUMBAI: Fast-moving consumer goods (FMCG) companies are grappling with heightened commodity cost inflation amid a sharp rebound in crude oil prices while the impact of weak monsoons is slowly showing up in pockets of consumption, companies said in their Q2 updates even as they estimated strong revenue and volume growth for the quarter.The broader takeaway is that demand continues to hold up but margins are under pressure. Analysts and brokerages attributed much of the growth to a mix of GST cut benefits, low base and selective price hikes, projecting a weak outlook for the sector going ahead.
The markets are mirroring the underlying pressure-FMCG Nifty Index is down nearly 16% since Jan 1. “With sustained cost headwinds, we may see growth moderation ahead, which alongside margin strain could stress FY27 earnings,” analysts at HDFC Securities said in a note. Godrej Consumer Products (GCPL) flagged intensifying input cost pressures during the quarter and said that uneven monsoon conditions also weighed on consumption. “We are responding through a combination of calibrated pricing actions, cost-saving initiatives, supply chain efficiencies,” GCPL said, estimating high-teens revenue growth and high single-digit underlying volume growth.Dabur, which expects consolidated revenues to record double-digit growth, said that operating margins were impacted by inflationary pressures, partly offset by price increases.“While volume trends have been stable so far (led by GST benefit and soft base), margin trajectory may not improve as expected with RM (raw material) pressures not abating. Hence, despite low double-digit sales growth, earnings growth is unlikely to be exciting or surprise positively for most of the names,” analysts at JM Financial said.The impact on volume growth will be visible from the March quarter, said independent consumer consultant Akshay D’souza. “The story in FMCG is that profitability is under pressure,” D’souza said. Even as companies have refrained from passing on the full impact of commodity inflation to consumers so far, selective hikes have negated much of the benefits from reduced prices post GST cuts. Further price increases in the coming months cannot be ruled out.“Domestic demand remained resilient during the quarter, even as the operating environment stayed volatile through the period. Looking ahead, we remain optimistic on consumption trends, while closely monitoring the evolving inflationary conditions,” said Marico.
