Medium to long term outlook for FMCG companies strong, margin expansion to continue: Kaustubh Pawaskar
Kaustubh Pawaskar, DVP, Fundamental Research, Sharekhan, says “competitive intensity from the smaller and regional players have gone up substantially and that is hurting FMCG companies at the bottom of the pyramid. So to reduce the competitive pressure, most of the companies might give damage offerings or promotional add-ons or reduce the prices to reduce the competitive pressure in the quarters ahead. This strategy may be implemented by most of the large companies in the quarters ahead.”
Raw material prices have been quite subdued, declining for the last couple of quarters. Finally, it seems like FMCG companies have been taking this grammage increase. Very rarely do we see this happening from the FMCG side. Will this finally support the growth of FMCG companies, which has been subdued in Q3? Kaustubh Pawaskar: Yes, so there are two aspects to it. One, obviously, they want to pass on the benefit of the lower raw material prices to the consumers. We have heard that rural demand is yet to pick up. And this is the commentary we have been hearing for the past three quarters.
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In this quarter’s updates also, the commentary remained the same. So the company wants to uptick the demand into the rural market. They want to push volumes in the rural market. And this can be done through reducing the prices or increasing the grammage volumes, which will help them to see a better uptick.
The second important factor is that the competitive intensity from the smaller and regional
