FMCG cos see recovery in margins during Q2

New Delhi: With commodity prices peaking out, major FMGC players, including Parle Products, Godrej Consumer Products and Dabur expect a recovery in demand in both rural and urban markets going forward aided by price stability.

Moreover, FMCG makers can look forward to better gross margins by the last month of Q2FY23 on a year-on-year basis, as there is a lag of around two months in their inventory coupled with forward contracts, experts say.

Prices of commodities have now peaked out and there has been a 15-20 per cent decline from peak prices in most commodities, according to Parle Products Senior Category Head Mayank Shah.

"This has brought some respite to FMCG companies, whose margins were affected by high inflation. Since most companies stagger price hikes and take them in a phased manner, we will not see any further price hike or package weight reduction which was in the offing. Despite price hikes taken by FMCG companies, the total increase in input cost was not factored in," Shah said.

While prices of commodities have seen a decline in the last few days, they are still very high compared to a similar period last year, he said. "Hence at best we will see no further price hikes. The price stability will help in the recovery of the market, both urban and rural since inflation and price hikes were a major concern," Shah added.

Expressing similar views, Edelweiss Financial Services Executive Director Abneesh Roy said crude oil price is at a one-month low and packaging cost, which is a significant raw material input for all FMCG companies, is linked to crude oil prices.

When asked about margin expansions, he said in "Q2FY23 there will be some benefit, not major as there is a lag of 2-3 months given there will be inventory, forward contracts. So a big expansion will happen in H2FY23."