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In the second quarter of FY25 (2QFY25), consumer staples exhibited contrasting demand trends with rural and semi-urban markets, including Tier-3 and Tier-4 cities, showed a recovery in demand trends, urban centres, metros, and Tier-1 cities experienced a slowdown, according to the systematix institutional equities report.
This divergence reflects the varied impact of inflation and income dynamics on consumer spending patterns. The slowdown in urban demand was particularly pronounced in specific categories, channels, and consumer segments. Soaps, tea, juices, noodles, and paints struggled due to subdued demand, with consumer wallets hit by rising inflation and intense competition. Conversely, categories like oral care, detergents, coffee, chocolates, biscuits, aerated drinks, spices, edible oils, and cigarettes performed relatively well, demonstrating resilience despite challenging conditions. However, modern trade and e-commerce channels displayed robust double-digit growth, prompting businesses to rebalance inventory from GT to these rapidly growing platforms. Among consumer segments, lower-income and middle-income groups bore the brunt of inflationary pressures, with non-salaried households hit hardest by rising food prices and stagnant income growth. To counter escalating input costs, companies implemented price hikes across categories like tea, soaps, biscuits, and paints. While these increases helped offset some inflationary pressures, they also risked suppressing volume growth in the latter half of FY25. Revenue growth for most companies remained subdued, ranging from -5 per cent to +5 per cent year-on-year (YoY), with negative pricing trends in the base period constraining realisation growth for several players. Margins faced significant pressure during the quarter, with operating profit margins (OPM) declining by 100-400 basis points YoY across the sector. This was primarily driven by sharp inflation in raw materials, sustained investments in branding, staffing, and distribution, and competitive pressures necessitating higher trade and consumer promotions. Despite price hikes, the lag in fully absorbing raw material inflation and continued operating deleverage is expected to sustain margin challenges into the third quarter of FY25. Amid these headwinds, companies with resilience to urban demand challenges, strong pricing power, and favorable category tailwinds are better positioned for growth. (ANI)
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