Volume growth is projected to slow to 9 per cent in Q2 FY27 as companies absorb higher input costs, with price hikes likely after the festive season
India’s fast-moving consumer goods (FMCG) sector is expected to see volume growth moderate in the September quarter of FY27 as rising commodity prices put pressure on profitability, even as demand remains resilient. Companies are seeking to offset higher raw-material and packaging costs through operational efficiencies, product-mix improvements and selective price increases rather than immediately passing the full burden on to consumers.
FMCG volume growth is expected to ease to 9 per cent in Q2 FY27 from 9.5 per cent in the preceding quarter, while gross margins are projected to contract by 51 basis points. The brokerage cited higher input costs and expensive inventory as key pressures, with milk prices rising 3 per cent year on year, sugar 18 per cent, palm oil 21 per cent and crude oil 47 per cent, according to an earnings preview by Elara Capital,
The pressure on profitability could persist even as sales expand. With ICICI Direct expects several leading FMCG companies to report double-digit revenue growth in the quarter, but Ebitda growth is likely to lag sales expansion as higher commodity costs weigh on operating performance. The brokerage also warned that deficient rainfall could affect agricultural output and moderate rural demand, while further food inflation could constrain urban consumption in the coming quarters.
Nomura’s commodity analysis highlighted the pressure from crude-linked inputs and packaging materials. It reported that Brent crude prices had risen 40 per cent year on year and high-density polyethylene (HDPE), used in packaging, had increased 45 per cent. Palm oil prices were up 21 per cent in rupee terms, while sugar prices had risen 18 per cent year on year despite some sequential softening. The brokerage said elevated raw-material prices could weigh on margins, although the impact would vary according to companies’ exposure to individual commodities.
HUL, Britannia Face Different Margin Dynamics
The impact of commodity inflation is likely to vary across companies, depending on their product portfolios, pricing decisions and exposure to individual raw materials.
Hindustan Unilever (HUL) is expected to report 11 per cent revenue growth in Q2 FY27, with volume growth projected at 6 per cent, according to Elara Capital. Home care is likely to remain a key growth driver, with the segment expected to expand nearly 14 per cent. However, Ebitda is forecast to grow by 7 per cent, while operating margins are projected to contract by 80 basis points to 23 per cent.
Britannia Industries is expected to benefit from a favourable year-ago comparison. Elara Capital projects net sales growth of 13.5 per cent and volume growth of 10 per cent, against a 3 per cent volume decline in the corresponding quarter last year. Price increases and a better product mix are expected to support realisations, although the forecasts do not eliminate the risk of higher input costs.
ITC faces a separate challenge in its cigarette business following an excise duty increase and subsequent price adjustments. Elara Capital expects cigarette gross revenue to rise 74 per cent, while net sales decline 20 per cent and volumes fall 8 per cent. The divergence reflects the effects of taxation and pricing changes on different revenue measures, rather than a conventional increase in underlying sales.
Marico, meanwhile, could benefit from lower copra prices despite higher costs for crude-linked derivatives. The company said copra prices remained around 35 per cent below their peak and expected a strong year-on-year improvement in gross margins, supported by a favourable product mix and the benefit of lower copra costs, according to ICICI Direct.
Dabur India said inflation remained elevated, particularly in home and personal care products and its over-the-counter and ethical products business. It acknowledged that operating margins had been affected during the quarter, partly offset by calibrated price increases and continuing cost-saving initiatives.
Godrej Consumer Products also reported renewed inflation across crude-linked derivatives, palm oils and other raw materials. The company expects another strong quarter despite consumption pressures from uneven monsoon conditions and higher commodity costs.
Companies Seek To Absorb Cost Increases
Manufacturers are attempting to protect profitability without immediately transferring the entire increase in input costs to consumers, particularly while maintaining consumption momentum during the festive season.
Nestlé India Chairman and Managing Director Manish Tiwary also acknowledged the pressure, saying that “rising inflation, particularly food inflation” was a “reality”. In its commodity outlook, Nestlé India said coffee and wheat prices were expected to remain range-bound, while sugar and edible oils were likely to stabilise at elevated levels in the December quarter. Cocoa remained volatile amid weather-related crop concerns in key producing regions, while milk prices had strengthened seasonally but were expected to ease with the arrival of flush supplies.
“We remain focused on navigating these external challenges through continuous innovation and renovation, sustained investments behind our brands, and an intensified focus on productivity and operational efficiencies to mitigate commodity cost pressures,” Tiwary said.
Whereas , as per media report, Parle Products Chief Marketing Officer Mayank Shah that rising inflation was a major concern for the FMCG industry, describing it as “definitely worrisome”. He said companies were trying to absorb part of the “margin shock” through efficiency improvements and cost reductions rather than immediately raising prices.
Shah said demand remained robust across urban and rural India as companies refrained from passing on the full increase in costs. However, he indicated that price increases could be considered after the festive season, depending on agricultural commodity prices and the broader geopolitical situation.
Inflation And Monsoon Risks Cloud Outlook
Further increases in crude oil prices amid geopolitical tensions in West Asia could raise packaging and transportation costs. Uneven rainfall and the potential impact of El Niño on agricultural output also pose risks to rural consumption, while higher food prices could constrain household spending.
ICICI Direct expects elevated input costs to continue putting pressure on margins in the second half of FY27. For FMCG companies, the challenge will be to determine how much inflation can be absorbed through efficiencies and procurement savings, and how much must be passed on through prices without undermining volumes.
With volume growth expected to moderate and commodity costs remaining elevated, the ability to balance pricing, consumption and profitability will be central to FMCG earnings in the coming quarters.
