Homegrown FMCG company, Emami Ltd, which had seen its margins come under pressure in the third quarter, expects expansion in both gross margins and EBITDA margins in Q4 FY23 on the back of a decline in commodity prices and overall improvement in macroeconomic scenario.

According to Mohan Goenka, Vice Chairman and Executive Director, Emami Ltd, gross margins contracted by nearly 150 basis points at 65.9 per cent during Q3 FY23 due to inflationary pressure and a favourable portfolio mix last year, while EBITDA declined by around 14 per cent at ₹294 crores over previous year.

Also read: Emami Ltd’s standalone net rises 7% in Q3

“We believe this would be the last quarter for margin contraction. With moderation in inflationary pressure, we expect an expansion in our gross margins and EBITDA margins in Q4 FY23. Hence, for the full year, we expect our EBITDA margins to be in pre-Covid levels, which is around 27 per cent for our core business,” Goenka said in the earnings conference call transcript.

Demand patterns for the FMCG sector remained sluggish during the third quarter with rural markets experiencing continued demand pressure. Further, a warmer winter season across the country impacted sales even more. However, December witnessed a moderate rebound in demand with easing of inflation.

Also read: FMCG sector’s value growth drops 1.6% in December quarter: NielsenIQ

Going ahead, the macroeconomic environment is expected to improve with inflation easing in December and the anticipated stimulus of the union budget should hasten the industry recovery.

“The upcoming quarter looks promising for the industry due to declining commodity prices, higher crop realisation, and continuous Government interventions,” he said.

Also read: Budget 2023: White goods, retail, FMCG sectors betting on consumption boost

E-commerce sales

The contribution of e-commerce channel increased by 260 basis points to 7.9 per cent and modern trade contribution increased by 200 basis points to 10.5 per cent of the domestic revenues. Both modern trade and e-commerce put together currently contributes to 18.4 per cent of domestic revenues against 13.8 per cent in the third quarter last year.

During the quarter, the company’s new and digital-first launches have also performed well in these new-age channels, contributing 14 per cent of sales in modern trade and e- commerce.

Also read: E-commerce can propel exports

“On the industry front, we do believe that going forward D2C and e-commerce would play an important role in the future growth strategy of the FMCG business with the omnichannel distribution. We plan to be present in these emerging channels of growth, the foundation of which we have already started building through many of our strategic investments in the new-age companies in recent past,” he said.

Emami, which had earlier acquired the MAN company, is looking for strategic investments in start-ups.

“We keep on evaluating them. And if it fits within our strategy, then we will definitely look for a strategic investment,” he said.

Also read: WTO: India submits papers on consumer protection in e-commerce, digital public infrastructure

The company has recently appointed Giriraj Bagri as the Chief Growth Officer to take forward its new brands, innovation, strategic investments, and other growth opportunities. The designation of Chief Growth Officer was not there in the company in the past. The mandate would be to identify newer growth opportunities – both organic and inorganic.

Emami’s international business grew by 7 per cent during Q3, translating into a 3-year CAGR of 13 per cent in spite of several key markets facing challenges like currency depreciation in Bangladesh, economic crisis in Sri Lanka, forex and liquidity crisis in Nepal, and ongoing political conflict in CIS countries among others. The growth has been mainly driven by strong performances in markets of MENA, CIS, Bangladesh, and Southeast Asia.

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