Relief for consumers as companies pause price hikes
The brokerage firm also expects the profitability margins of organised peers to be better than consensus estimates in H2FY23.
NEW DELHI: In a breather for consumers, most companies in the consumer durables and fast moving consumer goods (FMCG) space are unlikely to hike prices of their products for the time being on easing commodity prices. Copper, steel and aluminium prices have corrected 21%, 19% and 36%, respectively, in the past three months.
ICICI Securities, in a note released last week, said, “We expect the decline in input prices to provide margin tailwinds in H2FY23.” It added that with correction in input prices, the need to raise prices has declined. “We believe a breather was essential considering durable companies have raised prices incessantly in the past two years. The cumulative price hike was higher than 20% in the past two years.”
The brokerage firm also expects the profitability margins of organised peers to be better than consensus estimates in H2FY23. However, it adds, “We do not expect the margins to improve in Q2FY23 due to inventory with durable companies.” It further notes that consumer durables companies may invest the gains in raising advertisement spend after a gap of nearly three years, upping R&D spends, launching differentiated products, and increasing trade schemes and consumer offers to gain market shares from smaller/ unorganised players.
Mayank Shah, senior category head at Parle Products, says they have seen 15-20% decline from peak prices in most commodities. “This has brought some respite to FMCG companies, whose margins were affected by high inflation. Since most companies stagger price hikes and take them in a phased manner, we will not see any further price hike or package weight reduction, which was in the offing.” “Price stability will help in the recovery of the market, both urban and rural, since inflation and price hikes were a major concern,” Shah said.
Kotak Institutional Equities suggested that demand is holding well for consumer companies and stage is set for 2H margin recovery. “Margins would bottom out and margin-recovery-led earnings upgrades could commence in event of further sustained fall in palm oil and crude,” it said in a note.
Avneet Singh Marwah, CEO of consumer durables company SPPL, however, said on the flip side the rate of the US dollar has increased by 5-6%. Hence, brands would not see much of a difference in their profit margins as the other variable has gone up.
Copper, steel and aluminium prices have corrected 21%, 19% and 36%, respectively, in the past three months