FMCG shines in Q3 on health focus, winter portfolio

For FMCG majors, Q3 FY21 was characterised by ‘faster-than-expected recovery’ leading to ‘double digit (volume) growth’. It was also marked by an increasing focus on health and immunity offerings and winter portfolios performing well.

Rural demand continued to outpace urban, and modern trade channels saw some revival, driven by demand for staples, say market sources. However, gross margins could see contraction due to rising commodity prices.

Marico said its India business delivered double-digit volume growth, and “revenue growth was in tandem”. Godrej Consumer Products said it expects sales growth of low double-digit in Q3.

According to an Edelweiss report, the demand sentiment is expected to “continue to improve”, which should help the sector end FY21 on a strong note. “The quarter also marked revival in discretionary categories and an uptick in the winter portfolio,” it added.

Discretionary spend items such as value-added hair oils and hair colour, deodorants and premium personal care products witnessed improved demand.

Changing consumer trends

Marico said there was a steady revival in discretionary categories with premium personal care portfolios witnessing sequential improvements. Year-on-year comparisons, however, showed the category was on a decline. Offerings like Parachute coconut oil delivered ahead of their ‘medium-term aspirations’, Saffola edible oil saw double digit volume growth, and value-added hair oils witnessed ‘sharp recovery across sub-segments leading to overall double digit growth’.

Godrej claimed soaps are expected to deliver strong mid-teen growth. Hair colours, which witnessed a recovery, are also likely to deliver mid-teen growth.

A declining Covid-19 graph has also seen a shift in consumer behaviour. While disinfectant sprays continue to report strong sales, sanitisers and hand-rub offtake is on a decline. Soap sales are up.

With out-of-home consumption is picking up, growth slowdown in the biscuit portfolio is also expected. In-home food consumption — a dominant trend between April and September — is likely to taper.

“The worst seems to be behind for fruit juices and other segments impacted by the lockdown. Sanitiser sales are cooling off. There isn’t the same level of panic buying in the category that was witnessed earlier,” said Abneesh Roy, Executive V-P, Research, Edelweiss Securities.

The food and nutrition segment – especially items like immunity boosters or superfoods — continues to “stay strong”. Players like Marico, Emami and Dabur are strengthening their play in these categories. For instance, penetration of chawyanprash has doubled, while there is increased demand for adjacent offerings like honey and health supplements.

Gross margins

Marico said the quarter was characterised by inflationary pressure in key raw materials. This necessitated “cutting back of some promotions and taking effective price increases” across Parachute and Saffola edible oil portfolios.

According to market sources, with the price of crude and a few agri-commodities hardening, gross margins could dip year-on-year. Most companies have worked on productivity improvement and cost control, which should aid EBITDA margins.

“It is unlikely that EBITDA will be hit because of commodity price rise. Ad spends are also rising for different companies and it has to be seen how that plays out,” Roy said. “Freebies could be cut, or grammage reductions may happen.”

A price hike in items like soaps is not being ruled out.