FMCG Q4 Results Preview: Price Hikes To Dent Volume Growth

Makers of staples to shampoos are expected to report sub-5% volume growth in Q4, say analysts.

A store attendant sits beneath sachets of FMCG products. (Photographer: Kuni Takahashi/Bloomberg)
A store attendant sits beneath sachets of FMCG products. (Photographer: Kuni Takahashi/Bloomberg)

Soaring prices and rural slowdown-led demand pressure are likely to affect the fourth-quarter profitability of consumer goods companies.

Makers of staples to shampoos are expected to report sub-5% volume growth, according to analysts tracking the sector. They expect volumes to contract for Hindustan Unilever Ltd. and Dabur India Ltd. due to grammage cut in soaps and detergent and a high base of health supplements categories.

Marico Ltd. is likely to post “small volume growth” in India business, contributed by foods and digital brands, even as edible oil continues to drag overall volumes with steep price hikes in the last one year.

Margin pressure could dent Nestle India Ltd.'s operating profit despite good volume growth. Britannia Industries Ltd., Colgate-Palmolive Ltd. and Emami Ltd. would likely see muted 0-3% volume growth, with year-on-year margin contraction and a weak growth in operating income, said analysts.

ITC Ltd., however, is seen as an exception as it is relatively insulated given the pricing power in its cigarettes business and robust growth in agri-focused and hotels businesses, according to Jefferies. Robust wheat exports due to the ongoing Russia-Ukraine crisis is also likely to benefit ITC.

Elevated inflation has led to four consecutive quarters of price increases, slowing down consumption both in rural and urban markets. Consumers have even started down-trading or buying smaller packs with income not keeping pace with rising costs. According to market researcher Neilsen, volume for January and February dropped sequentially in single-digits while value remained flattish for many categories. Volumes declined even on an annual, two-year and three-year basis, Nielsen said.

Marico, in its quarterly business update, acknowledged slowing consumption amid weak rural sentiment and inflation aggravated by geopolitical tensions.

Godrej Consumer Products Ltd. said that it expects lower year-on-year operating profit due to input inflation and poor performance in the domestic market and Indonesia. “In India, the company expects to deliver close to double-digit sales growth, driven entirely by pricing. The two-year CAGR would be in the early twenties.”

Margin Under Pressure

Russia's invasion of Ukraine moved up prices of commodities such as crude oil and palm oil, making the operating environment for fast-moving consumer goods firms “extremely challenging”. Analysts have pegged the gross margin contraction to be in the range of 200-400 basis points.

“The gross margins are expected to see significant pressure in Q4 FY22,” noted analysts at KR Choksey Institutional Equities. “We believe the [price] hikes will not be able to act as a saver from the input cost inflation for the companies,” it said. Some firms may use advertising, promotions and overhead spends as a lever to offset pressure on operating margins.

  • HUL, ITC, Dabur and Marico are expected to report a 50- to 150-basis-point contraction in fourth-quarter gross margins.

  • Colgate is estimated to report a 337- and 262-basis-point contraction in gross and operating margins, respectively.

  • With some cost cuts and reduction in advertising spends, operating margin for Nestle India is expected to contract 110 basis points.

  • Operating margin is estimated to narrow by 158 basis points to 17.4% for Dabur India.

Margin contraction is expected to hurt profitability.

  • Nestle India’s net profit is expected to be flattish year-on-year, while Colgate-Palmolive’s profit after tax is likely to decline 14.8% over a year earlier in Q4.

  • HUL's profit is estimated to decline 1.6% in the January-March quarter.

  • However, Emami is expected to post 57% year-on-year growth in profit due to a lower base in Q4 FY21.

Pricing-Led Growth

Product price hikes are, however, expected to result in 7-13% revenue growth.

Most FMCG companies increased prices by 10-15% over the last six months to pass on higher commodity prices.

The hikes are expected to drive 7.4% sales growth among consumer firms, according to Motilal Oswal. Jefferies expect 9% revenue growth in Q4, while ICICI Securities expects 13.1% jump, entirely driven by pricing.

Beyond Staples

Companies operating in the discretionary segment are expected to perform relatively better as sales surged with easing of pandemic-related curbs.


Volumes are expected to outperform that of staple companies, aided by faster reopening of restaurants and pubs as well as rising mobility. The topline of the sector is estimated to grow 12.9% year-on-year and 3.1% over the fourth quarter of pre-pandemic FY19.

  • United Spirits Ltd., Radico Khaitan Ltd. and United Breweries Ltd. are likely to record sales growth of 9%, 10%, and 18%, respectively.

  • The revival in out-of-home consumption is likely to drive strong revenue growth for Varun Beverages Ltd., PepsiCo's Indian bottler.

Quick Service Restaurants

The revenue of the segment is likely to grow 17.4% year-on-year.

Jubilant FoodWorks Ltd. and Westlife Development Ltd. combined are likely to grow 9.4% on a three-year CAGR basis, driven by a strong recovery in dine-in, offsetting reduced consumption through convenience channels (delivery, on-the-go and drive-through) and takeaway.

Inflationary pressures are expected to be offset by improvement in volume, leading to flat operating margin, Nirmal Bang said.

Operating income and net profit are likely to rise 7% and 21.3% year-on-year, respectively, it said.


The segment was impacted by gold price volatility. Titan Co. Ltd., in its quarterly update, said its business reported a 4% year-on-year decline in revenue during the quarter.


Paintmakers, too, are expected to report price-driven revenue growth. Margins, however, will continue to be stressed given the high inflation in crude oil derivatives, indicated brokerages.

Asian Paints Ltd.'s sales are expected to grow 10.5% over a year earlier, while Berger Paints Ltd.'s revenue could grow 15%, led by the price hikes with a volume growth of 3% in Q4.

(The earnings preview has been compiled from reports by Jefferies, ICICI Securities, Motilal Oswal, KR Choksey, Emkay Global and Nirmal Bang.)