Price hikes drive FMCG revenues in Q3, but margins see some pressure

Volumes were also under pressure as consumers cut back spending on high inflation

Fast-moving consumer goods or FMCG players, on an average, reported double-digit growth in revenues in the October-December quarter (Q3). However, volume growth was subdued as consumers cut back on spending as companies hiked prices to offset raw material cost pressures. This trend was seen across results of most FMCG companies.

Hindustan Unilever, the maker of Lux soaps, posted revenue growth of 10.3 per cent to Rs 13,439 crore. While low off-take in rural areas led to negative volume growth, the FMCG major reported overall volume growth of 2 per cent in Q3 aided by urban demand. HUL’s margins expanded by 105 basis points to 25.8 per cent.

Reflecting the impact of low volume growth and high revenue growth, the maker of Parachute coconut oil too witnessed flat volumes during Q3, said the company. Its revenue rose 13.4 per cent to Rs 2,407 crore, compared with Rs 2,122 crore in the year-ago period.

“Marico 3QFY22 results were marginally below our estimates owing to inflationary pressure in key raw material costs (rice bran oil up 29 per cent, LLP up 17 per cent, HDPE up 24 per cent year-on-year) and management strategy of not passing on entire inflation to end customer,” PhillipCapital said in its post results report on the company. 

Motilal Oswal Securities (MOSL) also said in its review report on FMCG results that most companies reported double-digit sales growth on a soft base and price hikes in the last two to three quarters. 

“Volume growth in staples was weak, due to the inflationary impact on volumes, grammage reduction to pass on material cost increases, and slowdown in rural demand. Discretionary saw faster growth due to improved mobility and a pickup in consumption during the festive season,” the brokerage noted.  

Dabur India reported a 7.8 per cent increase in revenues at Rs 2,942 crore in Q3, while its volumes grew by just 2 per cent. “The overall operating environment remained challenging throughout the quarter with unprecedented inflation of 13 per cent and subdued consumer sentiments. We have mitigated the impact of inflation partially through calibrated price increases and cost-saving initiatives,” Mohit Malhotra, CEO at Dabur India was quoted as saying in the results release.

On similar lines, Godrej Consumer Products reported flat volumes in Q3 while its sales stood at Rs 3,274 crore up 8.2 per cent. 

Tata Consumer Products’ Q3 revenue from operations was up 4.52 per cent to Rs 3,208 crore, compared with Rs 3,070 crore a year-ago.

“Continued high commodity inflation in 3QFY22 led to significant pressure on gross margin year-on-year, despite companies taking some price hikes. Revival in ad spends meant that there was considerable pressure on EBITDA margin as well. This was partially offset by cost savings initiated by companies in previous quarters to counter the effects of the Covid-19 outbreak,” MOSL said. 

Among the larger players, Britannia Industries was among the few to see its net profit decline, on the back of high raw material costs. Its net profit fell by 18.6 per cent to Rs 371 crore in Q3 even as revenue was up 13.7 per cent at Rs 3,531 crore.

In the results commentary, Varun Berry, MD of Britannia Industries said that the company reported high single digit volume growth ahead of the market. 

ITC, however, appears to be an outlier. While the company does not share volume figures, its revenues increased by 30 per cent as its key cigarette business witnessed a recovery; segment revenues stood at Rs 6,959 crore, compared with Rs 6,091 crore a year ago. Pre-tax profit from the segment stood at Rs 4,187 crore, compared with Rs 3,659 crore in the year-ago period.

The cigarette to hotel major said that there was a robust recovery across markets aided by increase in mobility and agile supply chain and market servicing.

Revenues from the non-cigarettes FMCG segment increased to Rs 4,099 crore, from Rs 3,753 crore a year back, as discretionary/out-of-home categories such as snacks, frozen snacks and beverages showed a robust growth while the performance in staples and convenience foods was resilient. Margins, however, were lower given that PBIDT grew by 12.9 per cent.