The improvement in rural demand notwithstanding, price hikes and weak urban demand has affected sales volumes in the consumer sector in the December quarter and this, along with higher input costs, will put pressure on operating margins of the companies, Nomura said in a note.
It estimated annual sales growth in the consumer sector at 4.5 per cent, but added that volumes were likely under pressure, and with high raw material prices hitting gross profit margins, operating profits are likely to see a 2.5 per cent decline.
“Price hikes and weak urban demand likely pressured volumes despite an improvement in rural demand,” it noted.
The delayed and weaker-than-expected winter would also have affected those companies that make products for the cold weather.
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Price hikes have been taken by companies and those that have taken price increases in double digits have seen a decline in volumes. It said it expected Marico, Nestle and Godrej Consumer Products to have taken the highest price hikes. The categories most affected by price hikes are soaps, tea, coffee, edible oils, and some hair oils.
However with price hikes lagging commodity inflation, margins would come under pressure.
According to data from Nomura, price hikes ranged from 0.3 to 7.3 per cent in Q3. Industry heavyweights such as Hindustan Unilever, ITC and Britannia have taken modest price increases in the range 2-2.5 per cent, the data showed.
It forecast revenue growth in the FMCG sector in the range 0.3-16.4 per cent, with Tata Consumer Products, Marico at the upper end of the range and Godrej Consumer, HUL at the lower end.
On volume growth in the sector, Nomura said it estimated HUL, Godrej Consumer, Nestle, Asian Paints and Kansai Nerolac to report the least volume growth and Marico, ITC, Berger Paints to report better-than-peers volume growth at 4 per cent.
Most contraction in operating margin is expected for Tata Consumer, Godrej, Asian Paints and Colgate, and the least for Dabur India, HUL and Nestle.
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