Profit margins of FMCG, Electronic manufacturers may increase

7 Jul 2022 , 08:52 AM

Given the recent declines in the prices of major commodities like copper, steel, aluminium, palm, and crude oil over the past three to four weeks, packaged consumer goods and consumer electronics companies may experience an improvement in their profit margins in the September quarter for the first time in two years.

However, they said that they are actively monitoring macro and geopolitical concerns and that it is still important to sustain the downward adjustment in these commodities. Company executives and experts stated that they expect margin pressures to ease down.

Because major suppliers like Malaysia and Indonesia are now competitive in the export market, the prices of palm oil, which is used in soap, biscuits, and noodles, have fallen by 10%. Since Indonesian exports have resumed, crude palm oil prices have dropped by more than 35% in recent weeks.

Following supply disruptions brought on by the Russia-Ukraine war and Indonesia’s export embargo, which resulted in lacklustre demand as rising inflation put pressure on consumers’ wallets, companies have borne the brunt of the spike in commodity prices.

Godrej Consumer stated in an investor update on Wednesday that it does anticipate a recovery in consumption and gross margins in the next quarters due to the reduction in inflationary pressures and the major correction in crude oil and palm oil derivatives, two of our important raw materials.

Prices of essential raw materials for home appliances and electronics manufacturers, such as copper, steel, and aluminium, have decreased by 21—36% over the last three months.

Despite the currency devaluation placing 5%-7% cost pressure, businesses have delayed proposed price increases from July due to this ongoing drop in input costs.