FMCG Companies anticipate for finer income-

Lower input prices and lower inflation will stimulate demand and improve profits in H2, according to cos.

Leading consumer goods makers expect their earnings to improve for the rest of this fiscal year, with margins returning to pre-Covid levels on the back of reduction and stabilisation in raw material prices and early signs of improvement in demand.

Companies including?Britannia, Hindustan Unilever (HUL), Tata Consumer Products, Marico, Emami, Godrej Consumer Products, and Dabur in earnings calls said their Ebitda (earnings before interest, taxes, depreciation and amortisation)?margins will improve sequentially in the October-December and January-March quarters.

They also said they will not cut down on their advertising and promotion expenses to improve margins. Dabur chief executive Mohit Malhotra said Ebitda margins sequentially were better in the last quarter, and they will get better in the second half.

He said inflation in the last quarter has been around 10%.

“And we expect the inflation to abate a little bit to 6% levels as we are navigating a high base of last year’s inflation,” he told analysts recently. “So, we expect inflation to be around 6% and the price increase benefit of 6% kicks in now, so we expect the inflation to moderate in the coming quarters. With that sequentially, our margins should be better,” Malhotra said.

HUL chief financial officer Ritesh Tiwari told analysts last month that if commodities were to remain where they are today, the company expects the price versus cost gap to marginally narrow, leading to a sequential improvement in gross margin in the December quarter.?The country’s largest consumer goods maker has also said its net material inflation, which was at 22% last quarter, will come down in the December quarter.

The fast-moving consumer goods (FMCG) industry has been battling an unprecedented inflation impacting volumes and margins, leading to a slowdown in rural consumption.

Companies had undertaken multiple rounds of price increases or pack weight reduction to mitigate the impact. According to brokerage Nirmal Bang, gross margin contracted by 431 basis points in FY22.

Britannia managing director Varun Berry told analysts last week that there has been about 32% inflation in the last seven quarters, which has impacted the profits by approximately 23%, but was mitigated through about 20. 5% of price increases undertaken and 3% from cost efficiency. All companies have revived their advertising and promotion expenses.

Marico chief executive Saugata Gupta said the company is not cutting down on advertising and promotion spending since it does not want to “sacrifice the medium and long term for some short term”.

Emami vice-chairman Mohan Goenka said the company will increase advertising spending, which is a “raw material” to grow the market. The company does not see contraction in margins in the second half, and it expects Ebitda margins for the full year to be in the?pre-Covid levels of around 27%.

Kind Regards,

Siddhant Bisht

WealthRich.