However, the report stated that in some of the categories, the effects of price cuts taken earlier are now behind
Even after the revival in the rural consumption, the slowdown in urban consumption has been causing concerns for the fast-moving consumer goods (FMCG) companies. Now, with the return of raw material cost inflation, the FMCG players have taken the routes of price hikes and grammage cuts in various categories. A report has stated that this return of inflation is a risk to consensus margin assumptions.
A BNP Paribas Exane Research report stated a risk of further downward revision in earnings estimates for most firms in its coverage, as far as the outlook for 2025 is concerned. It added that companies will need to see an acceleration in growth to meet its revenue and earnings growth estimates.
It highlighted that in some of the categories, the effects of price cuts taken earlier are now behind. Thus, it has projected the pricing contribution to revenue growth to keep turning incrementally favourable in the coming quarters. However, this may come partly at the cost of volumes.
As per the report, Indian FMCG firms have seen a strong margin expansion over the last decade amid slowing revenue growth. Subsidiaries of multi-national corporations (MNCs) (Hindustan Unilever, Nestle and Colgate) operate at higher margins than their parents in a price-sensitive market like India. Adjusted for the royalty paid to the parent, margins are even higher.
“The FMCG industry has become more competitive and with high margins, we believe larger players are leaving room to undercut unorganised players at the bottom end. On the premium end, there are niche D2C brands which are looking to gain volume market share,” stated the report.
In this context, the report stated that it believes the scope to improve margin is now lower than a decade ago and earnings growth will have to be led by sales.
