Consumer Sector Update - Cost Prudence Protected Margins; FY22 Will Need Some Support: Nirmal Bang
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Nirmal Bang Report
Cost saving was important for consumer companies in FY21 to counter the dual impact of supply chain and demand disruption in H1 FY21 followed by sharp inflationary pressures in H2 FY21.
Overall operating cost (excluding raw material; as a % of net revenue) reduced in FY21 for majority consumer companies in our coverage, except discretionary where the impact was higher due to lack of operating leverage.
Advertisement and sales promotion spends declined for majority of the coverage companies with restricted investments made in H1 FY21.
The consumer staples companies saw the highest reduction in operating costs.
While there are still some lingering effects of commodity cost inflation in FY22, price hikes, normalised revenues and some sustained cost savings should drive operating margin expansion for the full fiscal year.
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