Affected by rising inflation, high production costs and price stabilization measures, the gross margins of fast-moving consumer goods (FMCG) companies are likely to decline during the October-December quarter. Apart from this, the profit of these companies may also remain very low or stable. Many FMCG companies are expected to see low single digit revenue growth.
One reason for this could be that many companies have opted to increase prices in the December quarter due to the rising cost of products like copra, vegetable oil and palm oil. The price hike comes at a time when low consumption due to high food inflation has hit the urban market. However, the rural market, which accounts for a little more than one-third of the total FMCG market, has been ahead.
Some listed FMCG companies like Dabur and Marico have shared their updates for the third quarter of the current financial year. Based on this, analysts have expected the volume growth of these companies to be in low single digits or remain stable. Domestic pharma Dabur expects low single digit growth in the December quarter. During this period, the operating profit of the company may remain stable. Dabur said inflation pressure was seen in some segments, which could be partially mitigated by technical price increases and cost efficiency measures.
The company said that rural consumption was better for the FMCG sector in the third quarter and it grew faster than the urban sector. The company has brands like Dabur Chyawanprash, Dabur Honey, Dabur Pudinahara, Dabur Lal Tel, Dabur Amla, Dabur Red Paste, Real and Vatika. The company said that alternative channels such as modern trade, e-commerce and quick commerce continued to show strong growth. Whereas general trade, which mainly includes street grocery shops, faced pressure during the quarter.
Marico also expressed similar views and said that the sector has recorded steady demand growth during the quarter. During this period, rural consumption has improved, while urban consumption has remained stable compared to the previous quarter. On sales in the domestic market, Marico said it expects some growth in the December quarter on a quarter-on-quarter basis. However, due to high production cost, its profit will be very low.
Marico owns brands like Saffola, Parachute, Hair & Care, Nihar and Livon. According to Nuvama, the urban demand outlook does not look good due to inflationary pressures, low wage growth and high housing rent costs. The company said that the slowdown in the urban market will continue for two-three more quarters. However, there will be some improvement in the rural market and it will be better than urban demand.
