Are FMCG companies eyeing better margins ahead?

Prices of palm oil, wheat, edible oils and crude oil have corrected 20 to 50% in the past one month. This can largely be attributed to improved supply chain dynamics and tapered demand in global markets.

As supply issues recede, analysts expect commodity prices to cool off further in the coming months, providing margin relief to the consumer goods companies.

On their part, companies like Hindustan Unilever, Britannia Industries and Nestle India expect margin pressure to continue in the second quarter of this fiscal. But analysts expect a turnaround on a quarter-on-quarter basis from the second half of FY23.

FMCG majors may also halt their successive price hikes amid abating inflationary pressures. This, analysts say, will augur well for volume growth in the second half of this fiscal.

Nishit Master, portfolio manager, Axis Securities says fall in input costs to benefit in H2. Sustenance of volume growth a concern. Positive on Varun Beverages, HUL and ITC.

The festive season and normal monsoons are other triggers that are likely to boost consumption.

Sneha Poddar, AVP, Research Analyst, Broking & Distribution, MOFSL, says festive season, fall in input costs to aid demand, and 16% rainfall surplus to boost rural demand. Reversal in Ebitda margin likely in H2FY23.

According to a Nielsen IQ report, an 8% value growth in the first half of 2022 indicates a positive outlook for the current calendar year. It expects the FMCG sector to grow in double digits this year.

On the bourses, shares of HUL, Britannia, Tata Consumer Products, ITC, Colgate India, and Marico have surged up to 43% so far this year. 

In comparison, the Nifty FMCG index has outperformed the benchmark indices, soaring over 14%.

The Nifty50 and the S&P BSE Sensex, on the other hand, have added 2% each, during the same period.

As regards today, crude oil prices, foreign inflows and rupee movement will continue to dictate the market trend. F&O expiry for August series and the upcoming Jackson Hole meeting will also be on investors’ mind.