Rising sugar, palm oil prices add to FMCG companies’ input-cost burden
Indian FMCG companies face mounting cost pressures from rising sugar, palm oil, cocoa, milk and crude-linked input prices, threatening profitability. Analysts expect operating margins to contract 100–150 basis points in fiscal 2027, as firms consider selective price hikes, reduced promotional spending and operational efficiencies amid uneven rural demand.
India’s fast-moving consumer goods (FMCG) companies are facing renewed input-cost pressures as higher prices of sugar, cocoa, milk, edible oil and other commodities add to the burden of elevated crude-linked costs and uneven monsoon conditions, Financial Express reported.
Analysts at Crisil Ratings, Elara Capital and Kotak Neo expect rising food inflation and commodity price volatility to weigh on gross and operating margins across the sector, even as companies use price increases and cost-control measures to limit the impact.
Higher sugar and palm oil prices are particularly likely to affect food companies, including biscuit manufacturers, where these commodities are key inputs.
Amit Agarwal, senior vice-president of fundamental research at Kotak Neo, said gross margins at several FMCG companies could decline year-on-year as they consume inventories purchased at higher crude and palm oil prices while absorbing increased costs of sugar, tea, edible oils and other commodities. Earlier price increases, however, are expected to provide some relief.
He added that lower advertising and promotion expenditure, along with operating efficiencies, could help companies limit the impact on EBITDA margins.
FMCG companies are expected to consider another round of price increases as input costs rise. Several players have already raised prices by around 3-5% since the West Asia conflict began.
Amit Purohit, vice-president at Elara Capital, said companies were likely to combine selective price hikes with tighter cost controls, including lower advertising spending and promotional offers, to protect profitability. However, the benefits of higher prices would take time to reflect in earnings, leaving margins under pressure in the near term.
Aditya Jhaver, director at Crisil Ratings, said companies were likely to be cautious about further price increases during the ongoing festive season.
He noted that while urban consumption remained relatively resilient, inflation and uneven monsoon conditions were affecting rural demand. This could restrict companies’ ability to pass on the full increase in input costs to consumers.
Crisil expects operating margins across the FMCG sector to contract by 100-150 basis points in fiscal 2027.
Personal and home care companies continue to face higher costs of crude-linked inputs, while food and beverage manufacturers are dealing with rising prices of cocoa, sugar, milk, edible oil, maize and tea. Weather-related disruptions, along with elevated logistics and packaging expenses, are adding to the pressure.
Despite the margin challenges, revenue growth is expected to remain relatively firm. Agarwal said several FMCG companies could report double-digit revenue growth, supported by price increases, a favourable base effect and stable underlying demand.
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Source : ChiniMandi
