FMCG firms caution price hike as input costs and food inflation rise

Fast-Moving Consumer Goods (FMCG) companies reported a decline in margins for the July to September quarter due to higher input costs and food inflation, which is slowing the pace for urban consumption, reported the news agency PTI on Sunday, November 3.

The rising prices of commodity inputs like palm oil, coffee and cocoa were also prominent, and some FMCG companies has hinted a price hike, reported the agency. 

HUL, Godrej Consumer Products Ltd (GCPL), Marico, ITC, and Tata Consumer Products Ltd (TCPL) have shown concerns over squeezing urban consumption, which makes up 65-68 per cent of FMCG total sales, according to industry experts cited in the report.

“We think this is a short-term hit and we will recover the margins through judicious price increase and stabilising of costs,” said Sudhir Sitapati, managing director and chief executive officer of GCPL in the company's second-quarter results, as per the agency report.

The Cinthol, Godrej No. 1, HIT-maker had a steady quarter given the headwinds of oil costs and tough consumer demand in India and its standalone EBITDA margin was lower, caused entirely by high inflation in palm oil, as per the report. 

The rural markets continued their growth ahead of the urban, which were lagging behind earlier. FMCG players reported growth from premium products and from sales through quick-commerce channels, according to the news agency.

Dabur India

Dabur India also said the demand environment was challenging in the September quarter marked by “high food inflation and a resultant squeeze in urban demand.”

The Dabur Chyawanprash, PudinHara and Real juice maker reported a 17.65 per cent fall in its net profits to ₹417.52 crore. The company's revenue from operations also fell 5.46 per cent to ₹3,028.59, as per the report.

Suresh Narayanan, the Nestle India chairman & managing director raised concerns over the decline and also said that the “middle Segment” is under pressure as high food inflation continues to cripple household budgets, as per the report.

“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 per cent,” Narayanan told the agency. 

Over the rise of food inflation, Narayanan said there is a "sharp uptick" in prices of fruits and vegetables and oil prices, as per the report.

"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 told the agency.

Nestle India

Nestle India, which owns brands such as Maggi, Kit Kat, and Nescafe also reported a of 0.94 per cent fall, the domestic sales growth was at 1.2 per cent, as per the report.

Narayanan also highlighted that tier-1 and below towns and rural also seem to be reasonably stable. However, "pressure points" are coming from mega cities and metros, according to the agency report.

TCPL MD & CEO Sunil D'Souza also said urban has softened and has an impact on consumer spending in urban areas. “My hypothesis is probably food inflation is higher than what we think it is, and the impact is far higher,” said D'Souza in the Q2 earnings call reported by the agency. 

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, as per the report. 

“The pattern is quite clear that urban growth has trended down in the recent quarters or quarter and rural has continued to grow gradually and has now for the past few quarters been ahead of urban, and also continues to be ahead of urban this time,” Jawa said in an earnings call, reported the agency.

HUL reported a 2.33 per cent decline in consolidated net profit.

Like HUL, Marico also reported “rural growing at 2x the pace of urban” on a year-on-year basis. It also reported “higher input costs in 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, as per the report.

“In view of the higher-than-anticipated degree of inflation in copra prices and sharp import duty hike in vegetable oils, the company will focus on its stated revenue growth aspiration while remaining watchful on the margin front during the second half of the year,” it said.

ITC, which operates in the FMCG segment, reported a marginal drop of 35 basis points in margins amidst inflationary headwinds in input costs.

It faced “subdued demand conditions” due to unusually heavy rains in parts of the country, high food inflation and sharp escalation in certain input costs during the quarter, as per the agency report.