With moderation in commodity costs over the past few months, some of the Fast-Moving Consumer Goods (FMCG) companies are expected to post an uptick in volumes in the March quarter. However, the rural demand continued to remain muted comared to urban consumption during the quarter, as per analysts.
As per the ICICIdirect Research report, softening of major commodity prices, price cuts by some FMCG companies and grammage increases is expected to result in volume uptick in Q4 FY23. “We estimate our FMCG coverage universe to see 9.8 per cent revenue growth in Q4FY23 led by mix of volume & pricing. Price cuts taken in beauty & personal care (BPC) category by the HUL have started benefiting the pick-up in volumes. Also, home care segment has been growing at a faster pace from last one year mainly propelled by higher mobility in post-Covid period,” the report noted.
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It added that the decline in commodity prices is likely to improve gross margins of FMCG companies. “Average palm oil, crude & coconut oil prices have been down 35 per cent, 16.1 per cent & 12.7 per cent, respectively, compared to the corresponding quarter. Wheat prices have dropped to ₹21/kg compared to its peak of ₹30/kg in December 2022. However, milk prices have not only remained firm, but has also inched up in Q4,” the ICICI Securities report noted.
However, the rural demand has been muted compared to urban demand. In a recent BSE filing, Dabur India too noted that it has seen sequential improvement in demand trajectory across urban and rural markets in March quarter though it falls short of a full recovery. “While urban markets have returned to positive volume growth, rural markets still remain muted,” the FMCG major stated. It added that it has seen emergence of green shoots on the back of moderating inflation, improving consumer confidence and increase in government spending
Gross Margins
A recent report by Nuvama Institutional Equities too stated that margin profiles of some of the FMCG companies have started improving year-on-year. “With Gross Margins expanding, companies have begun to ramp up ad spends. Urban shall continue to outperform rural. Accordingly, players with greater exposure to rural are likely to turn in a muted performance,” the report added.
In its recent BSE filing on Q4 performance, Marico pointed out that the sector continues to witness gradual recovery “with year-on-year volume trends improving in each quarter. “Among the key inputs, copra prices remained steady in a favourable zone and edible oils resumed a downtrend, while crude derivatives remained firm. As a result of a moderating RM basket and improving portfolio mix, gross margin is expected to expand and drive reasonable growth in operating profit on a year-on year basis