FMCG companies see higher margins as expenses decline

Margins of several large packaged goods businesses improved significantly in the January-March period after five quarters in which they either declined or remained modest. This improvement is projected to continue throughout the current fiscal year.

The improvement is the result of lower prices for important commodities, consumers' increased capacity to bear price increases in urban marketplaces, and the premiumisation of particular product categories.

Marico, the manufacturer of Parachute hair oil and Saffola food oil, stated in a post-earnings management commentary that it anticipates a rise in gross and operating margins of more than one percentage point in FY24 as a result of falling raw material prices. 

In earning calls, Tata Consumer and Britannia stated that lower inflationary pressures were resulting in greater margins, which they anticipate continuing throughout the year.

Britannia, a manufacturer of biscuits, baked goods, and dairy products, reported a sharp margin expansion in the last quarter of FY23, which ended on March 31. The company stated that because the pressure on core margins has diluted, it will increase its focus on product innovation and portfolio premiumisation.

Analysts and business leaders claimed that gross margins had peaked, adding that lower input costs and the advantages of strategic raw material purchases might still be passed on to customers.

The Russia-Ukraine war, geopolitical tensions, and supply disruptions in 2022 had put tremendous pressure on margins and caused sharp increases in prices for edible oils, wheat, sugar, barley, and coffee. Consumer goods companies raised their prices by 5-20% as a result, as reported by Economic Times.