FMCG firms may be running out of steam

Softening raw material prices boosted the profit margins of Indian listed fast-moving consumer goods companies in the September quarter (Q2FY24), as was expected.

- Vineetha Sampath & Pallavi Pengonda

Aggregate gross margin expansion for FMCG companies under Nomura's coverage stood at 505 basis points year-on-year, rising to 51.6%-the highest in at least nine quarters.

This left room for companies to step up their advertising budgets. Accordingly, Ebitda margin expansion was comparatively slower than the gain at the gross margin level. Ebitda is earnings before interest, taxes, depreciation, and amortization.

But while these have helped with profitability, the revenue and volume performances of these companies are nothing to write home about, in contrast with the overall industry performance.

"While overall FMCG market volume growth improved marginally quarter-on-quarter (8.6% year-on-year in Q2FY24 versus 7.5% in QIFY24) the demand was slower than expected for organised players (2.2% year-on-year in Q2FY24 versus 4.1% in QIFY24)," wrote Mihir Shah, analyst at Nomura Financial Advisory and Securities (India) in a report on 20 November.