Consumer staples: Double-digit growth likely, but margins under stress

India’s consumer staples sector is set for double-digit revenue growth, thanks to better volumes and price hikes. However, profitability will remain a key pressure point due to higher input, freight, and logistics costs, a new report says.

India’s consumer staples sector is expected to sustain double-digit revenue growth in the near term, supported by improving volumes and pricing, but higher input costs are likely to keep margins under pressure, Systematix Research said in its latest report. The brokerage expects aggregate revenue growth of around 13 per cent year-on-year for the top 10 companies in its coverage, with volumes rising about 8 per cent. It said volume growth has improved meaningfully over the past four quarters to 7-9 per cent, compared with 2-5 per cent in the preceding 14 quarters.

Demand Trends and Pricing Power

“Demand trends encouraging; margin pressure to land,” the report said, attributing the improvement in topline growth partly to higher product grammages following GST rate cuts across categories such as noodles, dairy, snack foods, hair oils, chocolates and coffee. The sector’s revenue growth is also being supported by 5-6 per cent price increases in categories including soaps, detergents, edible oils, oral care, snack foods and dairy, which companies have taken to partly offset higher input costs.

Profitability Under Pressure

Systematix further expects double-digit revenue growth to continue in the near term, with pricing making a significant contribution. However, profitability is expected to remain a key pressure point. The brokerage estimates aggregate gross margins for its coverage to decline by around 105 basis points year-on-year and 60 basis points sequentially in Q2FY27, while operating margins could fall about 45 basis points year-on-year.

The pressure reflects higher costs of crude-linked inputs, packaging and edible oils, along with elevated freight and logistics expenses.

The report also noted that companies are reinvesting part of their gross margins in brand building, distribution and sales teams amid strong competition.

Future Outlook and Uncertainties

Systematix expects festive demand to provide some support to volumes, although the benefit could be partly offset as earlier GST-cut benefits begin to annualise and price hikes take effect. It expects some sequential recovery in operating margins in the second half of FY27 if input costs remain range-bound.

The brokerage said the sector’s margin outlook remains uncertain and will depend on volume demand, input-cost inflation, pricing actions and competitive intensity. It expects companies to consider further price increases in the second half of FY27, particularly after the festive season, if pressures persist. (ANI)

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