Consumer goods firms expect margins to improve significantly over next three quarters

economictimes.indiatimes.com:

consumer goods companies such as Hindustan Unilever (HUL), Dabur, Marico, Tata Consumer Products and Havells have said in recent earnings calls they expect margins to improve significantly over the next three quarters of the current fiscal with input cost further moderating out and in some cases more than what they had initially projected, most of which will be ploughed back into advertising and promotional (A&P) investments. Margins are on an upward trajectory for most companies from December quarter with year-on-year reduction in inflation and raw material costs.

This led to a recovery in advertising and promotion spending as well which last quarter almost touched at par with pre-Covid levels. Marico chief executive officer Saugata Gupta said going forward from July-September quarter there will be further A&P increases while the company delivers operating margins of 20% plus – much higher than it had expected earlier.

He said such margins will be generated not by cutting down on A&P spends year-on-year since it wants to generate demand. Dabur chief executive officer Mohit Malhotra said the company saw gross margin expansion of 74 basis points (bps) during the April-June period with inflation softening, with the company reinvesting these gains into the business by significantly increasing the media spend.

A basis point is 0.01 percentage point. Dabur’s media spends grew by 30% last quarter.“With the moderation in inflation expected to continue for next few quarters, there will be a margin upside…For the full year, we expect improvement in gross margins to continue.