The urban slowdown within the domestic fast-moving consumer goods (FMCG) market that has hurt the financial performance of most majors in the September quarter is due to rising housing prices and low wage hikes, Britannia’s vice chairman and MD Varun Berry said during an earnings’ call on Tuesday.
Speaking to investors, Berry said, “The first reason is costly real estate. Housing costs, which make up 22% of the CPI basket in urban areas, have been on the rise. This is creating stress for most consumers in large cities and metros. The second is a slowdown in wage growth of the non-salaried workforce in urban areas, which has risen 3.4%, slower than inflation.”
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Berry’s comments are significant as urban areas constitute two-third of FMCG sales, while rural constitutes a third of sales. Britannia had on Monday posted a Q2 net profit fall of 9.4% year-on-year to Rs 586.5 crore and a 5% rise in revenue to Rs 4,667.6 crore amid muted demand conditions. Operating margins fell 290 basis points to 16.8% versus 19.7% reported a year ago.
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Berry also pointed to growing inflationary concerns amid a challenging operating environment, which is expected to see the firm take further price hikes in December and January. In the last few months, Britannia has raised product prices by 4-5% to combat inflationary concerns.
Yet, brokerage Nomura said on Tuesday that the price hikes were not enough to combat severe food inflation. Pricing declined, Nomura said, by 3.5% in Q2 for Britannia, in line with its estimate of 3.4%. Volume growth for Britannia, too, came in at 8%, Nomura said, below its estimate of 10-11% for Q2. A combination of these factors has hurt value growth, Nomura said.
“Value growth of the FMCG market in general is falling while input cost inflation is on the rise.
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