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Price cuts to drive volume growth of FMCG companies in Q4FY23

ICICIdirect Research 12 Apr 2023 DISCLAIMER

What's Buzzing? 

Our FMCG universe is likely to witness revenue growth led by a mix of volume & pricing in Q4FY23. Lower raw material costs will aid a margin recovery during the quarter. 


We estimate our FMCG universe to see 9.8% revenue growth in Q4FY23 led by a mix of volume & pricing. With softening of major commodity prices, FMCG companies have taken price cuts and grammage increases in the last six months. This is expected to result in a volume uptick in Q4FY23. Sequentially, average palm oil, crude & coconut oil prices have been down 35%, 16.1% & 12.7%, respectively. Wheat prices have also come down to ~Rs 21/kg from their peak of Rs 30/kg in December 2022. However, milk prices have inched up in Q4, which would continue to put pressure on gross margins of companies like Nestlé & Zydus Wellness. Overall, the FMCG universe is likely to see a 90 bps improvement in operating margin. 

Our Perspective 

We believe FMCG companies' Q4 performance will be aided by better volume offtake in Q4FY23. Volume growth is on the back of price cuts taken as a result of lower raw material costs. On the demand front, while urban demand has shown improvement, rural demand is yet to show a strong volume recovery. Softening commodity costs (barring milk) and lower ad spends are likely to support the margin recovery of FMCG companies in Q4. Going forward, FMCG companies are foraying into newer underpenetrated categories to offset muted growth in highly penetrated & saturated categories.

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