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Consumer demand stable in Q1, margins to improve: say FMCG players

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Two FMCG players – Marico and Godrej Consumer Products Ltd (GCPL) – in its quarterly updates reported that the overall consumer demand remained steady in the April-June period

New Delhi: The fast-moving consumer goods (FMCG) sector witnessed a stable demand in the June quarter and gross margins are expected to expand on softening commodity inflation even as the rural demand remained elusive, according to the latest reports of two companies.

Two leading FMCG players – Marico and Godrej Consumer Products Ltd (GCPL) — in their quarterly updates on Wednesday reported that the overall consumer demand remained steady in the April-June period.

Both companies have extended the benefits of lower input costs to their consumers, and hence reported some bearing on their sales growth expectations.

Marico, which owns Saffola, Parachute, Hair & Care, among other brands, said its performance in the domestic business was affected as it recorded a low-single-digit volume growth.

This was on account of a “significant trade destocking” in Saffola edible oils in reaction to sharply falling vegetable oil prices. Also, there were channel inventory adjustments in core portfolios triggered by the last leg of trade scheme rationalisation for correction of the historical Q1 revenue skew.

“In the given context, domestic volumes grew in low-single digits, with a minor volume drop in Parachute coconut oil, low double-digit volume growth in Saffola edible oils and a flattish quarter for value added hair oils,” it said.

Similarly GCPL, the Godrej Group’s FMCG arms, also expects its sales growth to be in the high-single digits.

“Sales growth was marginally higher than mid-single digit as we passed on the benefits of lower input costs to our consumers. Sales growth to be in high-single digits,” said GCPL.

Over the rural market, Marico said that consumer demand from rural India will recover for the rest of the year as inflation is moderating.

Marico said that though the urban markets were steady during the April-June period, the anticipated pickup in rural demand remained elusive.

“Moderating headline inflation, hike in MSPs, easing liquidity pressures and forecast of a near-normal monsoon continue to fuel hopes of a gradual recovery in rural demand in the course of the year,” Marico said.

While GCPL said its organic business continued to deliver robust performance with double-digit volume growth.

GCPL, which owns brands such as Godrej No 1, HITS, Cinthol and Good Knight, said the performance was broad-based with double-digit volume growth in home care and higher than mid-single-digit volume growth in personal care segments.

At a consolidated level, GCPL’s “quality of profits has seen sustained improvement, led by robust gross margin expansion and ongoing category development investments.”

According to Marico, among key inputs, copra prices stayed in a favourable zone and edible oil prices declined sharply, while crude derivatives remained firm.

“As a result, gross margin is expected to expand materially on a year-on-year as well as on a sequential basis. A&P (advertisement and promotion) spending continued to trend upwards in line with the company’s focus on strategic brand building of core and new categories,” it said.

Expansion in operating margin is expected to drive double-digit growth in the bottom line, said Marico.

Another FMCG firm Dabur in its latest annual report, which was shared with the bourses on Tuesday, said it is now witnessing a reversal in the commodity cycle, resulting in reduced prices for most of the key commodities.

“This development allows us to anticipate an expansion in gross margins for the current year,” Dabur Chief Executive Officer said, adding the company intends to allocate a portion towards A&P investments and the remaining portion will contribute to gradual improvement of its operating margin.

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