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Rising costs, muted demand to weigh on FMCG margins in Q1

Rising costs, muted demand to weigh on FMCG margins in Q1

Economic Times5 days ago
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ET Intelligence Group: Select companies in the fast moving consumer goods (FMCG) sector are expected to show marginal pickup in sales volume for the June quarter. Revenue growth will likely be driven by higher prices for some firms while others may report pressure due to weak demand. Margins may contract due to higher material costs and increased advertising spend for some companies. Marico and Tata Consumer Products are top picks of most analysts.The sector major, Hindustan Unilever 's volume growth is expected to revive to 3% for the June 2025 quarter given gradual recovery in demand. After clocking a 4% improvement in the year-ago quarter, volume growth fell in each of the following quarters to 2% in the March 2025 quarter. Operating profit may remain flat while margins are likely to contract by 1% due to rise in advertising and promotion costs to boost volumes.The cigarettes-to-paperboards maker, ITC is expected to sustain the year-on-year cigarette volume growth at the March quarter level of 5%. Paperboard growth is expected to remain weak due to sluggish export markets, weaker realisations and cheap Chinese supplies. Margins are expected to decline in both the categories due to surge in raw material costs. On the other hand, agri-business growth is expected to be in double-digit at around 10%. Nestle India is likely to deliver a 6% year-on-year growth in revenue, supported by about 6.5-7% rise in sales volume and price increase. However, inflation in coffee, cocoa, milk and edible oils could add pressure on the margin front. Varun Beverages (VBL), a major bottler of PepsiCo, may report flat revenue due to decline in volumes amid early onset of the monsoon season. According to Motilal Oswal Financial Services (MOFSL), the operating margin before depreciation and amortisation (Ebitda margin) may contract by 150 basis points. Britannia Industries is likely to clock volume growth of 3-4% while price increase implemented in the June 2025 quarter may drive revenue up by 9%. High agricultural commodity costs are likely to weigh on margins, though profit may rise by around 9% due to higher product prices.Revenue of Tata Consumer Products is expected to rise 11%, supported by growth in the domestic tea business. Salt segment is also expected to be driven by higher volumes and price increase. Marico's revenue may jump around 22% driven by 8-9% volume growth in the domestic market and higher product prices. On the contrary, margins are expected to contract by 330 bps points due to copra inflation and higher base.FMCG stocks outperformed the frontline indices in the past month where the Nifty FMCG index jumped 3.6% compared with around 1% rise in the benchmark Nifty 50 and BSE Sensex indices.
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