FMCG firms pass on input costs benefits to end users

Leading consumer companies have made efficient use of gains arising from falling input costs. Most of them have passed on the decline in costs to the end users, which in turn has enabled companies to keep volume growth at reasonable levels in the September quarter. Some companies have even increased investments in advertising as well as innovations across categories. Despite this, all major fast-moving consumer goods (FMCG) companies witnessed strong earnings before interest, taxes, depreciation and amortisation (Ebitda) gains compared to the year-ago period.

While the revenue growth has come down for most companies, investors need not worry as most of the fall is on account of lower realisations arising out of lower input costs. Volume growth trends have remained largely stable. Among outliers or where the trends were in contrast include ITC and Emami. ITC was the only exception as continued pressure on cigarettes business hit volumes in the quarter; in previous quarters too, its volumes have been on a decline. ITC's non-cigarettes revenue growth, too, came down this quarter impacted by overall slowdown, delayed festive season this year and lower growth of instant noodles category. Emami's sector-leading revenue growth, however, is largely contributed by the Kesh King acquisition. Excluding this, Emami's organic revenue growth stood at seven per cent with muted volume growth of just a one per cent.

Going forward, there are hopes of the festive season seeing good demand. While rural demand has been weak, any improvements will be a plus, given that the segment accounts for a large chunk for most FMCG companies. Input costs are likely to remain benign, enabling companies to reinvest further in their businesses and improve volumes from current levels.