Price hikes likely to drive FMCG firms' revenue in April-June quarter

Fast-moving consumer goods (FMCG) companies in the April-June quarter are expected to show higher revenues on the back of price increases. However, volumes are expected to remain under pressure because rising inflation is affecting demand. Discretionary spend was higher in the quarter than staples.

Rural demand for FMCGs was under pressure during the quarter. Godrej Consumer Products said in its quarterly update that rural markets witnessed slow growth compared to urban.

Motilal Oswal said in its preview note on the sector sales growth in the quarter would largely be led by price hikes because volumes for most categories remained affected by grammage reduction, high consumer prices, and a sustained slowdown in rural demand.

“Most of the firms took a further round of price hike in either 4QFY22 or 1QFY23 to battle high input costs. Although the cost of raw materials, such as crude and palm oil, has come off the peaks, this decline was towards the end of the quarter and therefore, unlikely to benefit margins in Q1,” Motilal Oswal said in its report.

It also said curtailed advertising and promotion spend during the quarter could alleviate some margin pressure.

Centrum Broking said in its report its interactions with channel partners suggested that April-May saw strong momentum while demand in June was subdued because growth decelerated in semi metros and rural towns.

Marico said its India business volumes declined in mid-single digits. Its performance was particularly dragged down by a sharp drop in Saffola Oils sales. Excluding Saffola Oils, the India business posted marginal volume growth. “Parachute Coconut Oil recorded a minor volume decline,” it said in its quarterly update.

Dabur India said in its update ahead of its results that its overall consolidated revenue was expected to grow at mid to high single digits. “We continue to grow ahead of category growths and gain market share in most of our segments,” it said.

Motilal Oswal expects most companies, except those in cigarettes and paints, to report low single-digit volume growth. Phillip Capital said in its report Hindustan Unilever and Godrej Consumer Products could be affected due to high commodity costs.

On Britannia Industries, the brokerage said: “We expect Britannia to see three-year volume CAGR (compound annual growth rate) of 7-8 per cent, which is quite commendable, despite Covid-19 tailwinds related to in-home consumption tapering off. Our checks suggest that Britannia has been able to report decent performance owing to schools opening up in entirety.”

Tata Consumer Products’ volume growth is expected to remain modest in the hot beverages segment due to a hi­gh base impact and intense heat wave. “(The foods business is expected to see muted volume growth due to reduction in home consumption); however, profitability shall improve due to benign tea price and around 20 per cent price hikes taken in the salts portfolio to combat raw material pressure,” Phillip Capital said.

YES Securities said it expected ITC's revenue to grow by 10 per cent, led by good performance in the cigarette business, and strong margin performance was expected to continue, led by operational efficiency.

Commentary to watch out for from consumer companies includes rural demand, overall demand impact due to high commodity costs, and volume growth.