FMCG corporations fear over excessive inflation, squeezing city market; trace worth hike

HUL, Godrej Consumer Products Ltd (GCPL), Marico, ITC, and Tata Consumer Products Ltd (TCPL) have expressed issues over squeezing city consumption. Representational file picture.
| Photo Credit: M. Karunakaran

Leading FMCG firms reported a decline in margins within the September quarter on account of upper enter prices and meals inflation, which finally slowed down the tempo of city consumption.

Rising costs of commodity inputs corresponding to palm oil, espresso and cocoa have been additionally accentuated and a few FMCG corporations have hinted at a worth hike.

Also learn | Consumption choices shifting amid rural revival

HUL, Godrej Consumer Products Ltd (GCPL), Marico, ITC, and Tata Consumer Products Ltd (TCPL) have expressed issues over squeezing city consumption, which in keeping with trade specialists varieties 65-68% of FMCG complete gross sales.

« We think this is a short-term hit and we will recover the margins through judicious price increase and stabilising of costs, » mentioned GCPL Managing Director and CEO Sudhir Sitapati in a Q2 incomes assertion.

GCPL, makers of Cinthol, Godrej No 1, HIT had a gradual quarter given the headwinds of oil prices and hard shopper demand in India and its standalone EBITDA margin was decrease, brought on solely by excessive inflation in palm oil.

The rural markets, which have been earlier lagging behind, continued their progress journey forward of city. Besides, FMCG gamers reported progress from premium merchandise and from gross sales via quick-commerce channels.

Another FMCG maker Dabur India additionally mentioned the demand setting was difficult within the September quarter marked by « high food inflation and a resultant squeeze in urban demand. » The maker of Dabur Chyawanprash, PudinHara and Real juice reported a decline of 17.65% in its consolidated internet revenue to ₹417.52 crore and income from operations slipped 5.46% to ₹3,028.59 crore.

Recently, Nestle India Chairman & Managing Director Suresh Narayanan additionally raised issues over decline and mentioned « middle segment » is below stress as excessive meals inflation continues to cripple family budgets.

« It is extremely clear that the market is facing muted demand. The growth in F&B sector, which used to be in double digits a couple of quarters ago, is now down to 1.5-2%, » he mentioned.

Over the rise of meals inflation, Narayanan mentioned there’s a « sharp uptick » in costs of vegatables and fruits and oil costs.

« This could lead to an increase in prices if raw material costs become unmanageable for companies. We are ourselves facing a difficult situation as far as coffee and cocoa prices are concerned,” he said.

Nestle India, which owns brands such as Maggi, Kit Kat, and Nescafe also reported a marginal decline of 0.94% and its domestic sales growth was at 1.2%.

Narayanan also pointed out that tier-1 and below towns and rural also seem to be reasonably stable. However, « stress factors » are coming from mega cities and metros.

TCPL MD & CEO Sunil D’Souza also said urban has softened and has an impact on consumer spending in urban areas.

« My speculation might be meals inflation is greater than what we expect it’s and the influence is way greater, » said D’Souza in the earnings call for the September quarter.

HUL CEO & MD Rohit Jawa said the market volume growth trajectory remained muted in this quarter. At an MAT (moving annual total) level, total FMCG volume growth has slowed down slightly in recent months.

« The sample is kind of clear that city progress has trended down within the current quarters or quarter and rural has continued to develop step by step and has now for the previous few quarters been forward of city, and in addition continues to be forward of city this time, » Jawa said in an earnings call.

HUL, which owns power brands such as Surf, Rin, Lux, Pond’s, Lifebuoy, Lakmé, Brooke Bond, Lipton and Horlicks, reported a 2.33% decline in consolidated net profit.

Similarly, Marico additionally reported « rural rising at 2x the tempo of city » on a year-on-year basis. It also reported « greater enter prices within the core portfolios ». Though it already had price hikes in the coconut oil portfolio and a favourable reversal in the pricing cycle in Saffola oils.

« In view of the higher-than-anticipated diploma of inflation in copra costs and sharp import obligation hike in vegetable oils, the corporate will deal with its said income progress aspiration whereas remaining watchful on the margin entrance through the second half of the yr, » it said.

ITC, which operates in the FMCG segment with brands such as Aashirvaad, Sunfeast, Bingo!, YiPPee reported marginal drop of 35 basis points in margins amidst inflationary headwinds in input costs.

It faced « subdued demand situations » due to unusually heavy rains in parts of the country, high food inflation and sharp escalation in certain input costs during the quarter.