Home / News / India /  FMCG companies to face gross margin pressure in near term, says report

NEW DELHI: Fast moving consumer goods makers, facing rising input costs over the last few quarters, will likely to continue to witness pressure on their gross margins in the near term, analysts at Jefferies said in a note.

Most large consumer goods companies undertook price hikes in the March quarter, some even earlier. This is true for makers of soaps, tea, cooking oil, among others.

“We note that current prices for most inputs are 5-30% higher than average December-February levels. Hence, even as these price hike help, gross margin pressure is likely to continue in the near-term," Jefferies said in a note.

Companies such as Marico, Hindustan Unilever Ltd, Dabur, Emami, Godrej Consumer Products have resorted to price hikes over the last few months as prices of essential raw materials climbed up.

“Both HUL and GCPL took hikes in soaps by 6-8%, albeit it trails 10-15% necessary to offset palm inflation. Dabur and Emami took prices up by 3-4%," the analysts said.

Some companies could continue hike product prices.

In an interview with Mint last month, Dabur India’s chief executive office, Mohit Malhotra, said the company witnessed “unprecedented inflation" in the March quarter.

“Inflation across commodity baskets has actually inched up. We’ve seen average inflation of around 5-6%, which is unprecedented. It’s been very severe in our agri basket—the spices and the edible oil portfolio. The second basket is more hydrocarbon-linked—which is the packaging material. All the PET bottles and the PVC bottles that you make are all derived from hydrocarbon," he said.

The company took a 3% price hike in the March quarter. “We think inflation will continue in the first quarter and maybe carry on till the second quarter. We expect the softening of prices to happen in the second half of this fiscal year," he added.

The report said Ebitda margins however expanded for most companies after they calibrated ad-spends and managed overheads.

“Thus, despite a gross margin decline, Ebitda margin expanded 40bps year-n-year and were in-line. HUL was a stand-out, which saw 150bps YoY margin expansion despite 130bps GM decline," the analysts added.

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