FMCG: Pressure on FMCG companies due to rising cost of raw materials
New Delhi| Companies manufacturing daily consumption goods (FMCGs) are seeing pressure on their margins due to rising raw material prices. Even before this, due to rising prices of palm oil, companies had increased the prices of soap and personal care products. Even at present, due to increase in prices of wheat, edible oil and dairy products, the pressure on companies to increase prices is increasing. In the new year, consumers may have to pay higher prices for some other things including biscuits. According to a report by research company Cantor, food inflation in the urban area has increased at the rate of 11.1 percent, which is the highest in the last 15 months and has affected FMCG companies. The growth of FMCG companies is likely to be slow in the first half of the year 2025.
Axis Securities expert says there is no sign of food inflation coming down in future. Which will have a direct impact on companies as well as consumers. The Reserve Bank has not yet reduced the interest rates due to which the cost of goods and input costs have increased. If seen, after reducing the interest rate, its cycle is seen after two quarters or three quarters. Due to which prices fall. We expect the Reserve Bank of India and other central banks to start reducing interest rates in the first quarter of calendar year 2025, after which FMCG companies will perform well in the second quarter of calendar year 2025. FMCG companies will perform well in the second quarter of 2025, reports TeamLease.
HDFC Securities Chairman Dheeraj Rally says that due to slowdown in urban demand and improvement in private capital expenditure, it may decline, while rural demand will increase, because many types of government schemes are being run by the government for these areas. And in the upcoming budget, the government will focus on rural areas, due to which the demand from here will increase. FMSG companies will directly benefit from this. We believe FMCG demand is less likely to improve in FY2025, says Priyam Tolia, analyst at Axis Securities. However, we expect FY2026 to show signs of recovery, driven by low inflation and the full impact of the recovery in rural areas. The demand for FMCG in rural India is projected to grow by up to 400 basis points more than urban demand.
In the recently held CII National FMSG conference, companies have considered taking various measures instead of putting the entire burden of increased prices on the customers. Ranjit Singh Kohli, CEO, Britannia Industries, said that we have increased the prices, but are taking many such measures so that the costs can be reduced and there is no complete burden on the customers. Mayank Shah, Vice President of Parle Products, explains that raw material prices have increased by 20 percent. We do not want to increase prices more, we are working at many levels to reduce costs. At the same time, companies are expanding their distribution network in rural areas. In which sales can be increased in these areas.
