Lower commodity costs and benign inflation will help companies improve operating margins significantly in the next few quarters, said executives.
Several are also enhancing advertising and promotional budgets by 10-15% year-on-year (YoY) from this month till around the June quarter to push sales at a time of improving demand, upcoming sporting events especially the T20 World Cup, and the crucial summer season.
Lower inflation will improve operating margins, said Ankush Jain, chief financial officer at Dabur India.
“And whatever upside in gross margins we will get, a significant portion of that we may want to reinvest in advertising, and balance around 20-25% of that expansion in gross margin we will give back as operating margin expansion,” Jain said on a recent analysts’ call.
Bajaj Consumer Care managing director Naveen Pandey said the company has reinvested a lot of margins back into advertising. “And I think that is something which is working for us,” he said.
Agri inputs ease
Pandey said the maker of Bajaj Almond Drops hair oil has grown primarily due to sustained efforts in distribution, advertising spending which rose by 100 basis points last quarter and sustained higher media spending.
India’s overall FMCG raw material basket is turning incrementally supportive led by broad-based softening across cereal-linked agricultural inputs and beverage commodities after an extended phase of inflation, per a report by Equirus Research published this month.
Among key commodities, wheat and maize prices have corrected about 11% and 17% respectively from a year earlier in December, the report said. Sugar and barley prices are lower by 1% and 5%.
Cocoa prices have dropped sharply, falling 48% on-year, while coffee robusta is down 25%, and Arabica and tea prices are also trending lower.
Within edible oils, copra prices have dropped, though mustard and sunflower remain firm by 8-10% on-year. Milk prices have corrected 7% sequentially.
