FMCG Ebitda margins strong despite slow volume growth

Companies claim they have been investing in brands, but numbers tell a different story

- VIVEAT SUSAN PINTO

THERE IS AN interesting trend showing up within fast-moving consumer goods (FMCG) companies. While volume growth, especially, rural volume growth, has been sluggish, earnings before interest tax depreciation and amortisation (Ebitda) margins, which is a measure of profitability for companies, remains strong. This has been on account of a moderation in commodity prices as well as strict costcontrol measures initiated by firms.

While companies claim they are investing in their brands to shore up volume growth, the numbers tell a different story.

In the last one year, rural volume growth for the domestic FMCG market has inched up from a decline of 3.6% in the September 2022 quarter to 7% in the September quarter this year, according to Nielsen data sourced from the industry. (See chart)

Ebitda margins, on the other hand, have moved up from 26% last year to nearly 28% now, pointing to awariness of companies to sacrifice margins for growth, sector experts say. Ebitda margins have been derived from an aggregrate of 13 FMCG companies, compiled by FE Research Bureau.

While FMCG firms, from Hindustan Unilever (HUL) to Godrej Consumer (GCPL), Dabur, Marico and Britannia, say they have been passing on commodity price gains in soaps, detergents, hair oils and biscuits, it is not showing in rural volume growth numbers, which continue to be lower than urban volume growth.