They attributed the improvement to a decline in costs of key commodities, consumers’ ability to absorb price hikes in urban markets and premiumisation of select categories.
Parachute hair oil and Saffola edible oil maker Marico said in a post-earnings management commentary that it expects gross and operating margins to move up by more than a percentage point in FY24 with easing raw material prices. “Last fiscal ended on a reassuring note with improving trends across all performance parameters, accompanied by indications of a gradual sectoral recovery,” said Saugata Gupta, managing director at Marico.
Tata Consumer and Britannia said in earnings calls that easing inflationary pressures were leading to higher margins, which they expect to sustain through the year.
For biscuits, bakery and dairy products maker Britannia, price hikes in earlier quarters with moderating inflation and internal efficiencies enabled a sharp margin expansion in the final quarter of FY23 ended on March 31, and the company said with pressure on core margins diluted, it would step up focus on product innovation and portfolio premiumisation.
“There is a growing trend towards premiumisation across segments. This is the area we’re going to straddle; to have products where we have the right to win,” Britannia chief executive Rajneet Kohli said in a recent interview with ET.
For Tata Consumer, innovation and the premiumisation strategy in salt and tea is expected to drive margins, ICICI Direct wrote in a report on Tata Consumer. “Further, softening of commodity prices along with requisite price hikes to also aid margins.”
Analysts and company executives said gross margins have bottomed out, adding that lower input costs and benefits from strategic raw material buying could continue to be passed on consumers.
Margins had come under severe pressure in 2022, as the Russia-Ukraine war, geopolitical issues and disruption in global supplies led to a steep surge in inflation across edible oils, wheat, sugar, barley and coffee. This had led consumer goods companies to undertake price hikes of 5-20%.
“We believe margin recovery will be faster than revenue recovery now, with commodity prices having eased and we expect a sequential improvement in gross margins for most companies,” HDFC Securities wrote in a report.
