Some moderation in commodity prices but too early to predict: ITC's Sanjiv Puri

Some moderation in commodity prices but too early to predict: ITC's Sanjiv Puri

With inflation remaining high, Puri says, ITC’s margin expansion targets could be hit in the short-term.

Sanjiv Puri, Chairman and Managing Director, ITC Sanjiv Puri, Chairman and Managing Director, ITC

After putting severe strain on household budgets and cost structure of manufacturers, inflation on agri-commodities may be tapering off. According to Sanjiv Puri, Chairman & Managing Director, ITC Ltd., some signs of moderation in commodity prices are finally visible.

“There are some signs of moderation but the situation is fairly dynamic. There is some cooling of for sure but it's difficult at the moment to predict its future movements as multiple factors are at play,” he said today. Citing various issues that are presently pulling prices of multiple commodities in different direction, Puri said close monitoring of the situation is the need of the hour.

While, high fuel prices are pushing inflation up, factors like use of bio-fuel in certain countries are impacting palm oil prices in fast moving consumer goods market. Additionally, supply side issues have impacted cost of several commodities.

“In this situation I would not like to predict. But my sense is for some more time inflation will remain at elevated levels. And whatever saving we may have, it have to passed on to the consumers. Increasing prices is the last resort for us but this time the magnitude of the inflation was so high, price action was required,” said Puri.

Impact on margins & rural market

ITC, that has set an ambitious target of expanding its FMCG margins by 100 basis points (bps) every year, had to settle for a meagre 10 bps expansion in FY2022. According to Puri, the unprecedented levels of inflation was a key factor behind this.

“For us, a 100 bps margin expansion is targeted. But there is short-term stress. Last year we expanded only by 10 bps because of unprecedented inflation. Our EBITDA (earnings before interest, tax, depreciation and amortisation) margin is already at 9 per cent and as situation normalises it will cross the double digit mark,” he said.

According to him, while the rural demand has been severely hit since inflation peaked in mid-2021, the situation is improving. Puri said, although the input costs have gone up, realisation from the rural market is slightly better now. But levels of stress can still be observed.

Among the key sectors that the Kolkata-based conglomerate operates, FMCG remains under more pressure compared to the others.

“As far as agriculture, hotels, paperboard and packaging are concerned demand for the industry is robust. In FMCG, concerns are certainly arising out of inflation and then there is more value seeking behaviour. The out-of-home category is performing better as economic activities in the prior period was low. Premium end of the sector is doing well,” said Puri.

To keep its growth momentum intact, ITC now plans to focus on segments like fortified foods, specific need-based products like affordable lactose free milk, products that address protein deficiency, immunity boosting beverages and millets.