Q2 results: How urban slump, input costs threw FMCG off gear

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Subscribe to enjoy similar stories. The fast-moving consumer goods (FMCG) sector is caught in a double whammy of rising input costs and an urban demand slowdown. This is eroding growth in the sales and profits of major companies in the sector.

The trend is reflected in their September-quarter earnings and was also noted by the finance ministry in its latest monthly review released last week. The urban slump marks a reversal from the rural slowdown in earlier quarters. Urban consumers are becoming increasingly cautious with their spending due to inflation, and this is clipping the demand, analysts say.

A Mint analysis of 21 listed players that belong to the BSE FMCG index and have declared their Q2 results shows that their combined top-line grew modestly at 10% year-on-year in the September quarter, compared with 7% in the previous quarter. The bottom-line growth was even weaker: After an 11% rise in Q1, it slowed to 8%. On a quarter-on-quarter basis, aggregate net profit shrank nearly 5% and operating profit 4%.

Raw material expenses of this basket of companies surged 9%, the sharpest in seven quarters. (four of those seven quarters had seen raw material costs decline.) “Revenue growth in Q2 is expected to be modest at around mid-to-high single digit, largely driven by mid-single-digit volume growth," said Kaustabh Pawaskar, deputy vice president at Sharekhan by BNP Paribas. “PAT (profit after tax) growth is expected to be lower due to lower margins impacted by input cost inflation." Also Read: Early bird Q2 results so far: Who's shining, who's not? Rising raw material costs affected consumer goods companies of all sizes.