Volume in consumption for the companies in the Fast Moving Consumer Goods business is under stress and will take more time to recover, Sudhir Sitapati, MD & CEO of Godrej Consumer Products (GCPL) told CNBC-TV18. GCPL has a market capitalization of Rs 88,529 crore ranking fifth in the FMCG sector with respect to market capital amongst giants like Hindustan Unilever (HUL), Nestle, Britannia Industries, Dabur India and Marico.
FMCG companies in India suffered a loss in margins, pressure on volumes and slip down in profit for the July-September quarter hit by inflation.
When it comes to numbers, Godrej Consumer Products reported a 25 percent decline in its net profit at Rs 358.86 crore for the quarter that ended September as compared to the corresponding period a year ago as volumes fell due to inflationary pressures. The consolidated volumes for the company declined 5 percent during the quarter.
Britannia, Dabur, Nestle and HUL reported volume growth in the mid-single digit but the companies did mention that cost & profitability front was hit by commodity inflation.
Although due to normal monsoons, good harvest and an increase in MSP might bring hopes of volume recovery on the back of a recovery in rural demand, Sitapati believes that it will still take a few quarters.
“Volumes are a function of many things, hyperinflation, COVID bases; things will stabilize and go back to normal levels in the next few quarters. Having said that, consumption in India is under stress and under pressure, there's no question about it. So I mean, that on a longer-term basis, that is difficult right now,” said Sitapati.
Further explaining why it will take time for the recovery in volume growth he added that there is volume pressure because consumers in India are facing post-COVID issues that may take a little bit longer to change.
However, according to data released by the Reserve Bank of India (RBI) in its September 2022 consumer confidence survey, most households reported higher spending levels, mainly due to an increase in essential item prices, and expect these levels to rise further over the next year.
In the next 12 months, three-fourths of the respondents anticipate increased spending, while 20 percent expect the current level to remain. Consumer confidence for the next year, as measured by the future expectations index (FEI), remained steady and the expectation at the aggregate level remained close to its level in the previous survey round, the
RBI survey noted.
The FMCG companies are staying cautious on volume growth after witnessing inflation bites in the second quarter of the financial year 2023. Home-grown maker
Marico which witnessed a volume decline for the fourth quarter in a row, in its latest quarter earnings in its quarterly earnings said that the company expects to deliver mid-single-digit volume growth in H2.
Britannia, which recorded its ”highest quarterly revenue” in Q2, also said on the cost & profitability front, commodity inflation remained on the boil on the back of rising inflation in flour and milk products.
Dabur, which reported a decline of 2.85 per cent in net profit for the quarter, said the environment remains ”challenging, marked by unprecedented inflation” and had a consequential impact on consumption.
Leading FMCG firm
HUL also said the demand environment remained challenging with inflation impacting consumption.
Shares of FMCG stocks did see a lot of movement today. Dabur India shares climbed the most and closed at being up by over 6 percent, Hindustan Unilever shares were next and closed climbing over 4 percent, Godrej Consumer Products shares closed up by nearly 2 percent. Shares of Britannia closed at Rs 4282, up by 1.6 percent from the previous close on the BSE, Marico shares closed up by 3.01 percent and Nestle India shares closed at Rs 20,081, up by 1.3 percent from the previous close on the BSE.
