Patchy urban demand continues to weigh on the performance of FMCG companies in Q4FY25, even as rural recovery and strong international sales provided a cushion, according to quarterly updates shared by Marico, Dabur, AWL Agri Business (formerly Adani Wilmar) and Godrej Consumer.
Leading FMCG players pointed at margin pressure, as palm oil, copra, coffee and edible oil prices stayed firm during the quarter. While companies have gone ahead with price hikes to soften the blow from input cost inflation, any benefit to the bottomline will reflect with a lag, analysts have said.
The sluggishness in FMCG sales is expected to persist till the first quarter of FY26, said analysts, as the drag due to raw material inflation is expected to continue in the coming quarters.
"The ongoing weakness in urban consumption is likely to continue to weigh on the value/volume growth of FMCG players in 4QFY25E and 1HFY26E. Rural growth is stable, but not accelerating. Inflation in a few commodities (palm oil, tea and coffee) is likely to drag margin delivery for a quarter or two," a Kotak Securities note said earlier this month.
While most players expect profit margins to be at similar levels as seen in the December quarter, Dabur fears its profit margin may contract by around 150-175 basis points on year during Q4FY25, weighed down by elevated food inflation. Dabur has been mitigating recent inflationary pressures through price hikes, and the management is working towards enhancing operational efficiencies to reinforce future profitability.
FMCG companies have raised prices to manage the impact, but the benefits are expected to materialise with a lag, said an Axis Securities note, adding that the EBITDA margins too is likely to contract, led by weak operating leverage and subdued gross margins.
Marico said the sluggish volume for its flagship brand 'Parachute coconut oil' were due to ‘titration’ in consumption, amidst a steep rise in consumer pricing and impact of reduction in certain pack sizes. The maker of Saffola oil added that it is expecting volumes to pick up as the stress on the consumer wallet eases, and the business will be helped by a seasonal moderation in copra prices from unprecedented highs.
In contrast, Adani Wilmar, which owns India's largest edible oil brand, reported a 44 per cent value growth amid higher raw material costs during the March quarter.
Rising input costs are expected to weigh on personal care sales too, with Godrej Consumer Products reporting that the segment is continuing to undergo a price-volume rebalancing.
"GCPL stock has corrected by ~25% over the past six months, owing to a steep rise in palm oil prices, competitive pressure in soaps and concerns around housing insecticides category," a Kotak Securities note said.
"Looking ahead, growth momentum is expected to be supported by monetary policy easing, favorable monsoon, and government measures aimed at boosting disposable incomes, which could uplift consumer sentiment and drive demand recovery by H2FY26”, Axis Securites said in a note earlier this month.
Dabur said it is optimistic of a recovery in FMCG. "We anticipate that the incentives outlined in the recent Union Budget will stimulate consumption and facilitate a recovery in the FMCG sector which Dabur is well placed to capitalise on," said Dabur.
Going forward, consumer goods companies are doubling down on brand building, refining go-to-market strategies and driving operational efficiencies to safeguard profitability.
"The operating environment remains challenging, as companies face stiff competition from regional players, the increasing presence of D2C brands, and inventory liquidation pressures in general trade channels," Axis Securities said.
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