The price-led revenue growth for fast moving consumer goods companies is likely to have been the case even in the second quarter of the current fiscal, as rural consumption remained sluggish due to inflationary pressures.
Rural markets account for about 45-50 per cent of the topline for most FMCG companies, and this segment has seen a slowdown in the past few quarters due to spiraling prices.
Analysts expect consumer staples companies to report a 12-22 per cent year-on-year growth in the topline for the previous quarter, led largely by price hikes.
Sectoral bellwether
is likely to have taken about 14 per cent hike, which is the highest among peers, according to brokerage house Securities.
While the overall volume growth is expected to be benign for the sector, HUL’s volume growth is expected to be highest among peers. Analysts see an over 4-6 per cent growth in volumes for
on a base of 9 per cent growth in the same period a year ago.
Companies like
, , and are seen reporting a 2-3 per cent in volumes for the quarter.
The net profit of companies is likely to have risen by 12-22 per cent on year in the reporting quarter.
MARGIN WOES
Despite price hikes, the profitability will be hit for the sector as the benefit of a fall in commodity prices during the last quarter will come with a lag, analysts said.
A combination of price hikes as well as grammage cuts were undertaken by most companies, but they weren’t enough to absorb the cost inflation, analysts said.
Overall, the commodity basket has seen a 12.6 per cent YoY rise in prices in Q2, even though it has moderated 6.7 per cent sequentially.
Companies such as
have guided for a 150-200 basis points drop in the operating margin, while expects a mid-teen decline in margins.
GOOD DAYS AHEAD?
The correction in commodity prices in the second half of the previous quarter has offered some respite to the industry. This has also instilled the hope that the worst for the FMCG sector in terms of higher input costs and rural growth slowdown may be over.
Godrej Consumer and Marico have said that they expect consumption to improve in the second half of 2022-23 (April-March) due to moderation in inflationary pressures and recovery in rural demand amid stable monsoon.
“We expect margins to bottom out in 2Q FY23 with high probability of QoQ expansion from 3Q FY23,” said brokerage Prabhudas Lilladher in a note.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
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