Food products sit inside a shopping cart inside a supermarket store. (Photographer: Andrey Rudakov/Bloomberg)

Q3 Review | Margin Or Volume: Indian Consumer Goods Makers Take Their Pick

Margins of Indian consumer goods makers narrowed in the last quarter as they chose volume-driven growth instead of increasing prices to offset higher costs.

The makers of home and personal care products such as Hindustan Unilever Ltd., Colgate-Palmolive (India) Ltd., Dabur India Ltd., Marico Ltd. and Emami Ltd. reported volume growth in the range of 4-12 percent year-on-year, according to company filings. Godrej Consumer Products Ltd. was the only company in this segment that reported a decline in volume growth despite lowering prices for soaps.

Besides, the fast-moving consumer goods companies continued to prioritise market share gains over margin to maintain volumes, according to UBS.

Marico was among the companies that chased to increase the share of volumes over margin. “It may be early to take a call on pricing based on input costs,” said Saugata Gupta, chief executive officer and managing director at the maker of Parachute coconut hair oil and Saffola edible oil.

The fast-moving consumer goods companies also avoided huge price hikes to keep volumes stable, according to Kotak Institutional Equities, that impacted margins.

Gross margin of the makers of home and personal care products contracted in the range of 10-380 basis points year-on-year, led by higher input costs and crude-linked volatility, which pushed up packaging costs.

Food And Beverage Makers

Food and beverage makers such as Britannia Industries Ltd. and Nestle India reported a fall in volume growth during the quarter despite the festival season.

Volume of the maker of Good Day and Nutri Choice biscuits grew at its slowest pace in four quarters in the October-December period, according to Chief Executive Officer Varun Berry. India’s second-largest maker of biscuits by volume, however, witnessed a recovery in January, he told BloombergQuint.

Nestle’s margin in the December quarter fell 10 basis points over the last year, while Britannia’s rose 260 basis points.

Nestle’s margin was also impacted because of an increase in marketing cost. The maker of Kit-Kat chocolate and Maggi noodles launched new products last year as it chases a volume-led growth. Suresh Narayan, chairman and managing director of Nestle, said the company is working on 24-36 product launches this year.

Advertising spends of Marico and Emami, too, went up compared with peers.