Nirmal Bang: Consumer Sector Outlook - Renewed Focus On Costs Across Coverage Companies

Nirmal Bang Report

Even prior to Covid-19 the slowdown in consumption had prompted the consumer companies to make ‘moderation of costs’ as one of their key focus areas in order to protect profitability.

Many companies had undertaken internal cost savings programs to help identify key line items where sustainable savings could be achieved.

However, the pandemic has led consumer companies to revisit their cost structures again and expedite sustainable cost control efforts in order to improve profitability and conserve cash.

While with the outbreak of Covid-19, companies have focused primarily on cutting back discretionary spends (some of these savings may sustain in the future), prior to the pandemic, they were focusing on the following to drive savings:

1. technology and process automation 2. improving supply chain and logistics efficiencies and 3. optimization of input costs and procurement efficiencies.

Even in Q1 FY21, in case of most FMCG companies, reduction of select operating costs (supported by a favorable input environment) either helped them to maintain or improve margins.

Going forward, certain savings in operating costs, like travelling and other discretionary spends may sustain while advertisement and promotion expenses will increase sequentially.

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