Margins, the bright spot for FMCG

While FY24 is expected to be the year of margin expansion for fast-moving consumer goods (FMCG) companies, the extent of recovery would vary. This is because of the different raw material baskets that companies have.

- Vineetha Sampath

For instance, companies with higher exposure to palm oil and its derivatives such as Godrej Consumer Products Ltd (GCPL) are expected to benefit more. Palm oil price is down by 51% from the peak seen in March last year.

Similarly, Brent crude oil is hovering at $72-77 per barrel, the lowest level since the beginning of 2022. This would aid margins of most FMCG companies, given that packaging costs would trend lower.

“Despite deflationary trends in past few months, inventory covers have delayed full benefit, which we expect will be visible in H1FY24," said analysts at Jefferies India in a 21 March report.

Here, home and personal care companies are relatively better placed. However, for packaged food companies like Nestle India Ltd and Britannia Industries Ltd, high wheat and milk prices are a problem. In March quarter to date, average price of wheat is up by 20% year-on-year on the back of unfavourable demand supply dynamics.