Despite the recovery in demand during the second quarter, rising raw material prices are putting pressure on the profitability of companies operating in the Fast-Moving Consumer Goods (FMCG) sector.
Cost pressure has intensified due to sharp increases in crude oil and its refined products used in packaging, as well as persistent inflation in various raw materials and drought conditions.
According to a report by broker ICICI Direct, the increase in crude oil and petroleum product prices, combined with the rising cost of other key resources, is likely to affect the EBITDA figures of most companies involved in home and personal hygiene goods.
ICICI Direct noted that 'the surge in crude oil/petroleum product prices combined with the rise in other key input costs will impact the EBITDA figures of most monitored home and personal hygiene care companies.'
Although revenue for several leading FMCG players is expected to continue growing at double-digit rates, operating profit growth may lag behind sales expansion as companies are forced to absorb some of the cost inflation.
The report also forecasts that the results of most FMCG companies in the second financial quarter of 2027 will be mixed: revenue is likely to grow double-digitally, while EBITDA growth will be lower than revenue growth due to the jump in raw material prices. Furthermore, reduced rainfall in most regions of India may negatively affect crop yields and lead to a slowdown in rural demand.
Further food inflation could impact urban consumer demand in the coming quarters. The report also predicts that 'higher input prices will hit margins in the second half of 2027.'
Companies, including Marico and Dabur, forecast double-digit revenue growth for the September quarter, supported by their core business and improved demand in certain categories. Dabur India reported in its quarterly business report that 'inflationary pressure remains high, especially in the HPC and OTC & Ethicals segments.'
The company added that 'operating margin was affected by inflationary pressure during the quarter; this was partially offset by calibrated price hikes and ongoing cost reduction initiatives.'
Marico, however, expects stronger margin performance, highlighting the differential impact of raw material prices on individual companies. The producer of coconut oil Parachute and Saffola stated that prices for derivatives of crude oil rose further during the quarter, while copra prices remained about 35 percent below peak levels.
The company stated: 'Among key resources, the cost of crude oil derivatives increased, while copra prices remained in the range 35 percent below peak levels. We expect strong year-on-year gross margin acceleration thanks to a favorable portfolio mix and tailwinds from copra prices.'
Other commodities such as palm oil and sugar also remain important variable costs for companies in the personal hygiene and packaged food sectors.
Godrej Consumer Products Ltd (GCPL) also acknowledged this trend, noting that 'cost pressure from raw materials intensified during the quarter.'
GCPL specified: 'While some raw materials showed signs of moderate growth by the end of the first quarter of 2027, the second quarter saw a resurgence of inflation across several key baskets of raw materials, including crude oil derivatives, palm oil, and other raw material components.'
Nevertheless, the company, which owns flagship brands such as HIT, Goodknight, Godrej No. 1, and Cinthol, anticipates a strong second quarter of 2027, despite 'consumption being influenced by uneven monsoon conditions caused by El Niño intensification and inflationary pressure on several raw material components, although there is a supportive comparative figure this quarter.'
According to Nomura's report, in September, prices for a number of raw materials remained above the year-ago level despite some gradual easing, potentially putting pressure on margins in the September quarter. Higher prices for crude oil and high-density polyethylene could increase packaging costs, while elevated prices for palm oil and sugar could negatively affect some consumer enterprises.
Companies are responding to this situation through calibrated price increases, product assortment changes, procurement efficiency improvements, and cost control measures. However, it remains a key question to what extent these increased costs can be passed on to consumers, especially during the festive season when companies aim to maintain consumption momentum.