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Mint
3 days ago
- Business
- Mint
FMCG stocks face margin pressure. Here's why
The fast-moving consumer goods (FMCG) sector is seen as a favourite among investors due to its stable cash flows and performance even in turbulent times. But recently, FMCG companies have been facing a new wave of margin pressure. From rising input costs to subdued demand, multiple forces are compressing the profitability for companies, and the markets are taking notice. Market acknowledgement of this fact is reflected in the performance of the FMCG index. Looking at the broader markets over the past year, the Nifty FMCG index rose 0.96% as compared to a 9.06% increase in the Nifty50. Here's a closer look at why FMCG stocks are under margin pressure right now. Reasons for Margin Pressure At the core of the problem is cost inflation. Sharp price rise in key raw materials- especially palm oil, wheat, maida, potato, cocoa, tea, etc, have pressured margins and have made it necessary for the companies to raise the prices. But companies can pass on these costs through price hikes only to some extent. The confluence of a few macro factors further impacted the margins, which have pushed global commodity prices higher. These factors are: geopolitical disturbances due to the Russia-Ukraine war, the Israel-Hamas war, and reciprocal trade tariffs by the US. Slowdown in various advanced economies, including the US and the UK, and climate change (untimely monsoon, floods, droughts) are the other factors. Managements of various top FMCG giants have highlighted the uncertainty in input costs and remain cautious in their margin guidance in the recent investor presentations. The management of Hindustan Unilever Ltd (HUL) revised FY26 earnings before interest, tax, depreciation, and amortization (Ebitda) margin guidance downward from 23–24% to 22–23% due to inflation. Operating profit margins (OPM) for FY25 of Marico Ltd are lower, from 21% to 20%, while Britannia's margins have fallen from 18% to 16.4%. Further, the pace of real GDP growth decreased from 9.2% in FY24 to 6.5% in FY25. The weakness in consumption was seen in the flat volume growth of the FMCG sector, both in rural and urban areas. To make matters worse, India's consumer food price index fluctuated during the previous fiscal year, with a peak in October 2024 (marking an inflation rate of 10.08%). The cumulative impact of inflationary pressures, as well as low GDP growth, has pulled down household savings and reduced consumption expenditure. Another factor contributing to the margin pressure is the intense competition in the FMCG space, not just from large brands but also from aggressive local players and small direct-to-consumer (D2C) brands. Recovery signs in the FMCG space Despite a weak short-term outlook, the FMCG companies are cautiously positive for the FY26 recovery. Management sees macro factors to normalise soon, including stabilising CPI inflation, easing raw material prices. India's overall retail inflation fell to 3.16% in April 2025, the lowest in nearly six years. Companies are implementing gradual price increases to slowly rebuild and recover their margins without disturbing the demand. Consumption expenditure is expected to pick up slowly due to the continuous recovery in rural demand because of the good monsoon. Further, improvement in urban demand can be seen due to lower inflation levels and tax cuts announced in the Union Budget, which is expected to boost disposable incomes. What could turn things around? The companies are focusing on deepening penetration and distribution in core and growth categories. The companies continue to execute on their strategy of premiumization (a shift towards branded products) and innovation. Companies are improving supply chain management and achieving cost optimization through modern trade, e-commerce, quick commerce, and digital transformation. They are continuously focusing on volume-led competitive growth. Conclusion The FMCG stocks are facing margin pressures right now. Rising input costs, weak demand, and intense competition, all putting pressure on the profitability of the companies and affecting the revenue growth as well. For FMCG companies, the solution lies in premiumization, cost optimization, deeper penetration, and digital transformation. Investors should be selective with stock picking, looking for companies that are adjusting to changing consumer preferences through product innovation and deeper distribution. Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock before making any investment decisions. Happy Investing. Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. This article is syndicated from
Indian Express
5 days ago
- Business
- Indian Express
India Inc profit growth slows down in fourth quarter amid uncertain economic environment
The corporate sector, a key driver of economic growth, witnessed a subdued performance in the quarter ended March 2025, with both profit and sales growth slowing down. The weak macroeconomic conditions and shifting geopolitical landscape, marked by trade uncertainties, have cast a shadow over the industrial horizon. An analysis of fourth-quarter results of 1,787 companies listed on stock exchanges, conducted by Bank of Baroda, showed that the profit after tax (PAT) of these companies grew by 9.2 per cent in Q4 FY25, compared to 12.6 per cent in the corresponding quarter of the previous fiscal. In absolute terms, their net profit stood at Rs 3.43 lakh crore, as against Rs 3.13 lakh crore attained in the quarter ended March 31, 2024. Sales of these companies rose by 5.7 per cent to Rs 28.81 lakh crore in Q4 FY25, down from a growth of 9.2 per cent to Rs 27.25 lakh crore in the fourth quarter FY24. During the reporting quarter, net profit margin (NPM) increased to 11.9 per cent, compared to 11.5 per cent in the March 2024 quarter. The slowdown in profit and sales growth reflects the challenges faced by the corporate sector in navigating the uncertain economic environment. The weak macroeconomic conditions have impacted demand, leading to a slowdown in sales growth. At the same time, companies have struggled to maintain profitability amidst rising costs and trade uncertainties. The RBI had revised downwards the real gross domestic product (GDP) forecast for 2025-26 at 6.5 per cent from 6.7 per cent projected in the February 2025 policy. 'This downward revision essentially reflects the impact of global trade and policy uncertainties,' RBI Governor Sanjay Malhotra said while unveiling the monetary policy last month. 'Growth in both sales and net profit was lower in Q4 FY25 relative to last year. Growth in net profit is still impressive at 9.2 per cent. Net profit margin has shown sequential improvement, which is a positive sign,' said Bank of Baroda's Chief Economist Madan Sabnavis. Excluding services sector companies, the analysis showed that the net profit of 1,079 manufacturing companies increased by 13.7 per in Q4 FY25, compared to a degrowth of 2 per cent in the year-ago quarter. During the March 2025 quarter, these companies posted net profit of Rs 1.66 lakh crore, higher than Rs 1.46 lakh crore recorded in Q4 FY24. Their sales grew by 3.9 per cent in the March 2025 quarter, slower than the 4.7 per cent growth posted in Q4 FY24. 'During the quarter, consumer sentiment remained largely stable, supported by improving rural demand and mixed trends across mass and affluent urban segments. Margins for most players were under pressure due to input cost pressures,' Marico Ltd Managing Director (MD) and CEO, Saugata Gupta, said during the Q4FY25 earnings call. The company reported an 8 per cent increase in PAT at Rs 343 crore in Q4 FY25, from Rs 318 crore in Q4 FY24. In the earnings call after announcing the Q4 FY25 results, Hindustan Unilever CEO and MD, Rohit Jawa said FMCG (fast-moving consumer goods) market witnessed subdued demand trends in the financial year 2024-25. Rural demand continued to improve gradually while urban demand moderated over the year. Amid a challenging global business environment, Reliance Industries Ltd (RIL) reported a 6.4 per cent rise in consolidated net profit at Rs 22,611 crore for the quarter ended March 2025 as against Rs 21,243 crore in the same period of last year. Significant demand-supply imbalances in downstream chemicals markets have led to multi-year low margins. 'FY2025 has been a challenging year for the global business environment, with weak macro-economic conditions and a shifting geo-political landscape,' said RIL Chairman and MD Mukesh D. Ambani while announcing the quarterly results recently. Domestic companies expect improvement in quarterly performance in FY26, driven by higher consumption due to lower food inflation and a healthy monsoon. 'US tariff policy remains a downside risk to industrial outlook. As of now, the pause on US reciprocal tariff hike provides temporary relief, but the 10% universal tariff hike by US remains in force since April,' said Dharmakirti Joshi, Chief Economist Crisil. The anticipated tariff hikes after June, coupled with slower global growth are likely to hit export demand. The anticipated India-US trade deal remains a monitorable. Investment prospects too face heightened uncertainty due to high tariffs, their continued escalation/de-escalation and lack of clarity on where they will eventually settle, Joshi said.
Mint
17-05-2025
- Business
- Mint
FMCG firms have been hunting for deals. Their appetite is only growing bigger
India's cash-rich makers of staples to shampoos will press ahead with big-ticket acquisitions as they chase high-growth, premium targets to cushion themselves from an overall slowdown in urban consumption. Dabur India Ltd, Marico Ltd and Emami Ltd will continue to scout for mergers and acquisitions (M&As) that help them enter new categories such as premium personal care and wellness, build a digital-first portfolio, and expand reach in the traditional market, according to their earnings calls. 'If there is a new brand or a new category to be addressed, that is where M&A comes in and supplements our efforts of organic business with inorganic business," Mohit Malhotra, chief executive officer at Dabur India, said during the company's post-earnings call on 7 May. Also read: Ice cream brand Hocco eyes sweeter spread with $10 million fundraise and pan-India ambition Large fast-moving consumer goods (FMCG) makers built mass-market portfolios of soaps, salt, biscuits, shampoos and more for a broader reach. But new, urban consumers are increasingly buying skin serums, muesli, supplements, pet food and healthy snacks or beverages. Some new brands, especially online, are even gaining market share from incumbents. This shift is happening when demand for mass-market products has remained under pressure due to heightened inflation. Indian FMCG industry reported an 11% year-on-year value growth in the March quarter, while volumes grew 5.1%, according to data sourced from NielsenIQ. However, rural demand grew four times faster than growth in urban areas, where consumption further decelerated, it said. Rural demand primarily fuelled deals worth $2.1 billion in 2024, according to Jayakrishnan Pillai, partner at Deloitte India. The consulting firm expects 6-8% growth for the sector in 2025-2026 compared with 5-6% in the previous two years, bolstered by improving urban demand, stable rural consumption, reduction in personal income tax and lower inflation. Also read: Young Indians are drinking less but better 'A heightened emphasis on premium products, health and wellness and rural market expansion may serve as primary motivators for strategic acquisitions, while integration of e-commerce and digital advancements could facilitate consolidation within the industry," Pillai said. Deal hunt FMCG companies have continued their post-pandemic acquisition blitz. Last week, Dabur outlined a seven-pronged approach as part of a strategy refresh with plans to invest in core brands, expand in premium categories, update its products and aggressively pursue acquisitions to build a 'future-fit" portfolio. The maker of Vatika oils and Real fruit drinks had last year acquired 51% of hair care company Sesa Care Pvt. Ltd, expanding its presence in the ₹900 crore ayurvedic hair oil market. The company cited 'substantial revenue and cost synergies" for the deal. In 2022, Dabur acquired a 51% stake in spice maker Badshah Masala for ₹587.52 crore. The company's M&A approach will focus on new-age health care, wellness foods and premium personal care brands. 'It [target firm] should be revenue accretive to us, which will substantially add to the revenue of the company because growth in general trade is a little subdued," Malhotra said. 'The second will be to create a future-fit portfolio, which resonates to the new generation." Mumbai-based Marico also targets becoming a 'house of brands' and acquisitions will be vital to its transformation into a digital FMCG company. Marico's recent investments include a majority stake in premium skincare brand Just Herbs in 2021, a majority acquisition of plant-based nutrition company Plix, full acquisition of male grooming brand Beardo, and an investment in food brand True Elements. All these are relatively new brands and categories. 'We firmly believe that we are a 'investor of choice' given our house of brands. We are on our way to our aspiration of becoming one of the most successful digital FMCG companies," Saugata Gupta, managing director and chief executive officer at Marico, said in an interview with Mint Thursday. 'We are open (to acquisitions) provided it is a fit. There are still some portfolio gaps in our digital basket. We think there is enough opportunity in both food and personal care." The consumer and retail sector deal volume in 2024 rose a modest 13% over a year earlier, but 2025 has seen a few large bets, according to data shared by consulting firm Grant Thornton Bharat. 'Strategic acquisitions dominated the M&A landscape within the consumer segment, with Tata Consumer Products leading the way with its high-profile acquisitions of Capital Foods and Organic India—the two deals collectively accounted for nearly 21% of the M&A deal value, setting the tone for the year," according to a January report by the firm. Regional, D2C focus Earlier this year, India's largest FMCG company Hindustan Unilever Ltd acquired a 90.5% stake in personal care brand Minimalist for ₹2,955 crore, upping its ante in the digital-first personal care space. HUL's M&A strategy has been a mix of investments in established as well as new-age brands. HUL acquired Indulekha hair oil for ₹330 crore in 2015 and Horlicks from GlaxoSmithKline for ₹3,045 crore in 2020. More recently, the company's focus has shifted towards premium, online-first brands like Minimalist and wellness and supplements brand Oziva. The acquisitions are one of the tools HUL uses to grow businesses, Rohit Jawa, chief executive officer at HUL, said during the company's post-earnings call with the media last month. For instance, the company has good brands and capabilities in foods, but if an opportunity offers a complementary fit with a good commercial case, the company will definitely look at it, said Jawa. HUL is constantly scanning for such opportunities. The key strategy is to continue investing in and growing their market maker (categories identified by HUL as ripe for premiumization) and future core (future trendsetters) segments to drive overall business growth, he said. Pillai of Deloitte India said growth in M&As is anticipated from both regional brands and direct-to-consumer (D2C) companies. 'Regional brands provide immediate scalability and access to local markets, while established D2C companies, particularly those with robust digital and e-commerce capabilities or those operating in rapidly expanding health and wellness sectors, represent appealing targets for acquisition." Also read: India's FMCG industry clocks 11% growth in March quarter on higher edible oil prices Kolkata-based Emami Ltd, known for brands like Zandu balm and Boroplus, said it has cash available and is open to investing in traditional and direct-to-consumer or D2C businesses. Emami's recent acquisitions include stakes in male grooming, new-age personal care, packaged drinks, and pet care brands. Greater competition in the market is prompting companies to step up innovation, according to Harsha V. Agarwal, vice chairman and managing director at Emami. 'We are looking for more acquisition opportunities. We are open for smaller acquisitions as well as large ones," he said in an interview with Mint last month. 'The opportunity has to be good. Investment is not a constraint for us because we are a debt-free company with a very good PAT (profit after tax) and Ebitda (operating income)."
Mint
15-05-2025
- Business
- Mint
Marico calls it—India's FMCG sector to rebound this financial year
New Delhi: Marico Ltd, the maker of Parachute hair oil and Saffola cooking oil, is optimistic India's fast-moving consumer goods sector will rebound this financial year as food prices finally show signs of easing and rural demand remains robust. Volume growth in India's FMCG sector is expected to be slightly higher in 2025-26 as overall demand is reasonably steady, although a dramatic recovery might not be immediate, said Saugata Gupta, managing director and chief executive officer, Marico. 'The consumption is a tad better than what gets reported as a summation of the listed companies in some way," Gupta said in an interview with Mint. 'Inflation is slowing down and urban consumption will improve. So overall volume growth for the sector is definitely going to be slightly higher than what it was last year. You might not get a dramatic recovery, but it will definitely be better than last year," she said. Also read | Marico's margin pain will linger for some time India's retail inflation rose 3.16% year-on-year in April, its slowest pace in over six years on the back of lower food prices. With consumer price index-linked inflation staying under 4% for three consecutive months, several economists expect the Reserve Bank of India's monetary policy committee to cut rates again in June, which, in turn, would spur overall consumption and economic growth. Food inflation eased to 1.78% in April from 2.69% in March, 3.75% in February, and 4.83% a year earlier, after having hovered at about 7% between November 2023 and June 2024. Gupta expects a combination of good monsoon rains, the government's focus on rural infrastructure, and minimum support prices for crops to bode well for rural demand. 'We expect rural demand to be steady. If there is a slight improvement in urban demand, which I foresee, overall volume growth for the (FMCG) sector this year will definitely be better than what it was last year," he added. Marico is confident of delivering double-digit revenue growth in the current fiscal year as well, helped by improving demand and distribution in rural and urban markets. The company also remains open to acquisitions that fit its adjacency criteria and address portfolio gaps, particularly in wellness, Gupta said. Also read | FMCG's mixed bag: Rural strength masks urban slump in latest quarter Inflation to soften in second half India's fast-moving consumer goods industry reported a 11% year-on-year value growth for the March quarter (the final three months of 2024-25), driven by a 5.1% volume increase and a 5.6% price hike, according to NielsenIQ, Mint reported on 8 May. While overall inflation is easing, high edible oil prices are keeping the basket of staples expensive, resulting in higher value growth. However, most consumer goods companies have signaled gradual improvement in urban demand going forward. Wholesale price index-based inflation eased to a 13-month low of 0.85% in April as food and energy prices softened. Earlier this month, Godrej Consumer Products Ltd said it is optimistic about demand packaged goods. 'We are bullish about consumer demand over the next 12 months for a variety of reasons," chief executive Sudhir Sitapati told media persons. 'The El Nino effect basically took up food prices in India last year. Food price inflation has an immediate impact on FMCG consumption. Now that El Nino has reversed, food price inflation has come down in the January-March period." Additionally, the Union government's decisions on lowering personal income tax and welfare schemes rolled out over the past year should start to bear fruit, he added. Also read | In charts: Retail inflation eases again, but signs of price pressures are there Marico, which sells edible oils, hair oils, and personal care products, faced inflationary headwinds as edible oil prices remained elevated in the second half of 2024-25. Gupta expects inflation to persist in the first half of this fiscal year due to the base effect from the previous year's price increases. However, he expects copra prices to start softening around the second quarter (copra is used in making coconut oil). 'Price inflation component will be much lower in the second half," he said. In the March quarter, Marico's revenue from operations grew 20% year-on-year to Rs2,730 crore, with underlying volume growth of 7% in the India business. Profit improved 7.8% to ₹345 crore. For 2024-25, Marico reported a 5% growth in volumes. Revenue from operations jumped 12.2% to ₹10,831 crore, reflecting the price hikes implemented by the company. 'Price hikes are mostly done. Inflation has been steadily moving down; crude oil prices are broadly stable. Obviously in the first half of the fiscal there will be inflation because of the base effect," Gupta said. 'As you know, both copra and edible oil prices started increasing significantly during the second half of the year. The first half will be inflationary, but copra will start softening sometime in quarter two." Also read | Demand slowdown puts FMCG's 'fast-moving' tag to test
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Business Standard
02-05-2025
- Business
- Business Standard
Marico Q4 results: Profit rises 7.8% to ₹345 cr on strong global growth
Consolidated revenue from operations during the quarter under review stood at Rs 2,730 crore as against Rs 2,278 crore in the same period a year ago, it added Press Trust of India New Delhi Homegrown FMCG firm Marico Ltd on Friday reported a 7.81 per cent rise in consolidated net profit at Rs 345 crore in the March quarter, driven by volume and revenue growth in India, along with robust international business. The company had posted a consolidated net profit of Rs 320 crore in the same period of the previous fiscal year, Marico Ltd said in a regulatory filing. Consolidated revenue from operations during the quarter under review stood at Rs 2,730 crore as against Rs 2,278 crore in the same period a year ago, it added. Total expenses in the fourth quarter were higher at Rs 2,336 crore as compared to Rs 1,894 crore in the corresponding period the previous year. In the fourth quarter, volume in India grew 7 per cent while the revenues were up 23 per cent. International business saw constant currency growth of 16 per cent, it added. The company said in India its 'Parachute Rigids' registered 1 per cent volume decline, witnessing transient sluggishness due to consumption titration, typically during hyperinflationary cycles, amidst steep increase in consumer pricing and the impact of volume reduction in select packs. On the other hand, Saffola edible oils posted a 26 per cent growth in value terms. The brand recorded a low single-digit volume decline amidst elevated pricing in response to elevated vegetable price tables, it added. Foods vertical recorded a robust 44 per cent value growth and crossed Rs 900 crore in revenues in FY25, the company said. For the fiscal year ended March 31, 2025 consolidated net profit was at Rs 1,658 crore. It was at Rs 1,502 crore in the previous year. For FY25, consolidated revenue from operations was at Rs 10,831 crore. It was at Rs 9,653 crore in FY24. Marico MD & CEO Saugata Gupta said in 2024-25, the company crossed the Rs 10,000-crore mark in consolidated revenues. "As set out at the start of the year, we have met our double-digit revenue growth aspiration, backed by top quartile volume growth in the India business and robust growth in the international business," he added. On the outlook, Gupta said, "While we expect elevated input costs to be transient headwinds in the near term, we remain focused on leveraging the building blocks in place to deliver industry leading growth in FY26." Marico said its board of directors at its meeting held on May 2, 2025 recommended a final dividend of Rs 7 per equity share of Re 1 each, subject to approval of shareholders at the ensuing 37th Annual General Meeting of the company. Together with the interim dividend of Rs 3.5 per equity share declared on January 31, 2025, the total dividend for the year ended March 31, 2025, amounts to Rs 10.5 per equity share of Re 1 each, it added.
