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India Inc may soon pass on the higher input cost burden to customers

India Inc may soon pass on the higher input cost burden to customers

Consumer-oriented companies like Hindustan Unilever, Asian Paints, Britannia and Nestle witnessed the heat of rising prices in their quarterly results.

FMCG major Hindustan Unilever (HUL) is cautiously optimistic in the near term FMCG major Hindustan Unilever (HUL) is cautiously optimistic in the near term

The second-quarter result showed that India Inc is struggling to boost its margins amid rising inflation. However, they have managed to report decent top line and bottom line numbers during the quarter. Low base coupled with cost-cutting measures and passing on higher input cost amid rising inflation aided financial results during the quarter gone by.

Consumer-oriented companies like Hindustan Unilever, Asian Paints, Britannia and Nestle witnessed the heat of rising prices in their quarterly results.

Take this: Paint major Asian Paints recently posted a 28 per cent year-on-year (YoY) fall in consolidated net profit at Rs 595.96 crore in Q2 on the rise in the cost of material consumed. The cost of material consumed jumped 72.70 per cent YoY to Rs 4,570.53 crore. The company's profit before depreciation, interest, tax and other income (PBDIT) margin declined to 12.73 per cent in Q2FY22 over 23.64 per cent in Q2FY21.
 
Amit Syngle, managing director and CEO, Asian Paints said, "Steep inflation seen in raw material prices, since the beginning of this calendar year, has been phenomenal and has impacted gross margins across all businesses in the quarter. We have taken a series of price increases and would look at a further price increase to mitigate the impact of this persistently high inflation and are confident that we should be able to turn this around strongly in the coming quarter."
 
According to Japanese brokerage firm Nomura, CPI inflation in India is currently above the central bank target. "The rise in India's inflation expectations is a concern, as it suggests medium-term inflation of around 5% (above the 4% midpoint target). Since expectations are formed adaptively and influenced by rising food and fuel prices, this warrants close monitoring," Nomura said, adding with inflation expectations on the rise, it expects a faster policy normalisation in India.
 
On the other hand, FMCG major Hindustan Unilever (HUL) is cautiously optimistic in the near term. It expects that the next few months is critical to get a better understanding of underlying demand in terms of normalisation of economic activities, onset and intensity of winter and impact of inflation. However, it added that gross margin is likely to remain under pressure and judicious pricing actions coupled with cost agility and savings programme to continue.
 
HUL posted 9 per cent YoY growth in net profit at Rs 2187 crore in Q2 on an 11 per cent YoY rise in sales at Rs 12,516 crore. However, the EBITDA margin declined 40 basis points to 25 per cent.
 
Nestle India also highlighted that cost of material consumed as a percentage of sales has also increased in Q3 due to higher commodity prices, particularly edible oil and packaging materials. However, it was partly offset by better realisations. The maker of Maggi Noodles posted a 5.15 per cent growth in net profit to Rs 617.37 crore for the third quarter ended September. The company, which follows the January-December financial year, had posted a profit of Rs 587.09 crore in the same period a year ago. Net sales increased 9.63 per cent to Rs 3,864.97 crore as against Rs 3,525.41 crore earlier.
 
EBITDA improved by 7.3 per cent YoY to Rs 949 crore, although the margin shrank 50 basis points YoY to 24.4 per cent. Amid an inflationary scenario, the company also plans to achieve cost efficiencies to expand margins in the coming quarters.
 
FMCG major Britannia has also initiated price increases to cover inflation over the next two quarters, the company said in investors' presentation. Of late, the company posted a 22.86 per cent year-on-year fall in its consolidated net profit to Rs 384.22 crore for the quarter ended September. The cost of material consumed of the company also spiked to Rs 1914.72 crore in Q2FY22 over Rs 1,768.12 crore in Q1FY21. Overall, net sales of 263 companies in the BSE500 have jumped by 25 per cent to Rs 17 lakh crore so far. Net profit witnessed a rise of 28 per cent YoY at Rs 1.78 lakh crore.

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