FMCG, Retail Q1 Review - Margins To Remain Range-Bound As Rising Costs Offset Price, Mix Gains: Systematix

Systematix Report

Overall consumer staples’ demand remained constrained in Q1 FY25 with most companies delivering moderate revenue/volume growth, but now clearly calling out a rural demand revival, visible in Q1 and in July by names like Dabur India Ltd. overindexed to rural sales. While volumes in certain categories were impacted by harsh summers and elections, topline growth was also limited by price cuts from prior quarters.

Companies including Tata Consumer Consumer Product Ltd., Colgate Palmolive India Ltd., Dabur, Marico Ltd. and ITC Ltd. delivered low-double/high-single digit value growth while Godrej Consumer Products Ltd., Hindustan Unilever Ltd. and Nestle India Ltd. lagged on declines/marginal growth.

Some categories (mainly foods and some personal care) delivered relatively better performance. Gross margin expansion was robust for most companies (120-280 basis points YoY) on benign raw material costs.

However, operating margin gains were significantly lower 30-60 bps YoY for most companies due to a step-up in advertising and promotion and distribution spends amid sustained high competitive intensity from smaller/emerging players.

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