Higher palm oil prices, input costs to impact FMCG firms' Q2 margins

Leading FMCG players expect rising palm oil prices, higher input costs and increased advertising and promotion expenses to impact their margins and profits in the September quarter.

In the latest quarterly business updates, FMCG players such as Godrej Consumer Products Ltd (GCPL), Dabur and Marico have hinted at a flattish growth in their margins on a year-on-year basis as prices of copra and vegetable oil appreciated in the July-September period.
 

Godrej Industries Group's FMCG arm GCPL said it expects a "flattish" earnings growth in the domestic market in the September quarter as higher palm oil prices added to input costs.
 

 

"Palm input costs have been rising since March and have risen in the high teens as of date. Management has decided not to pass on the entire cost hike to consumers in one step and decided to continue investments on the long-term growth initiatives like rural van programme, new category development etc," it said.
 

"As a result, the standalone EBITDA (earnings before interest, taxes, depreciation, and amortization) growth will be flattish," said GCPL which owns brands such as Good Knight, Cinthol and HIT.
 

However, in terms of top-line the company expects its standalone business (domestic) "to perform well with high single-digit underlying volume and value growth", GCPL said.
 

Marico said among key inputs, copra prices rose ahead of internal forecasts and the recent import duty hike led to vegetable oil prices moving higher towards the end of the quarter.
 

"Crude oil derivatives, however, remained range-bound. We expect gross margin to moderate on a year-on-year basis owing to partial absorption of higher input costs, as the company prioritised expanding its consumer franchise in the current demand environment," said Marico which owns popular brands like Saffola, Parachute, Livon etc.
 

It further added, "Consequently, we expect a moderate lag in operating profit growth vis-à-vis revenue growth on a year-on-year basis." Dabur is working to correct the distributor inventory and on account of this, the company is expected to post a mid-single-digit decline in consolidated revenue for the quarter.
 

Moreover, the company which owns brands such as Dabur Amla, Dabur Vatika, and juice brand Real, has increased its spending on advertising.
 

"In line with our commitment to continue to invest behind our brands, the A&P investments continued during the quarter.
 

"However, as a result of lower primary sales, our profitability will be impacted during the quarter and the operating margin for the quarter is expected to decline in the range of mid to high teens due to deleveraging and continued investment behind brands," it said.
 

This temporary corrective action is a necessary step to strengthen the GT channel and enhance our efficiency and growth going forward, Dabur said.
 

Besides, FMCG companies have reported a rise in sales from alternate channels.
 

In the second quarter, edible oil major Adani Wilmar's revenue from alternate channels increased at a strong double-digit rate YoY, with revenue over the past 12 months exceeding Rs 3,000 crore.
 

"The e-commerce channel has seen even more rapid growth, with its revenue increasing by around four times in the last four years," it said.
 

Dabur has witnessed "disproportionately higher growth" in organised channels during the last few quarters as MT, e-commerce and quick commerce which has led to an increase in inventory levels in the General Trade (GT) channel impacting the distributor ROI.
 

"The company has taken an important strategic decision to correct distributor inventory in the GT channel and improve their ROI," it said.