NewKerala.com

FMCG Q3 Growth Masks Margin Pressure from GST Cuts & Competition

A Systematix Group report indicates FMCG companies achieved approximately 9% year-on-year revenue growth in Q3 FY26, supported by a 6% volume increase. However, a significant portion of this growth stemmed from GST cuts in various categories and channel restocking activity, rather than strong underlying pricing power. Price corrections in segments like tea and edible oils, coupled with intense competition in detergents and paints, are constraining companies' ability to improve profitability. The report concludes that the sustainability of future performance will depend heavily on growth excluding these one-off GST-related benefits.

Key Points: FMCG Revenue Up 9% but Margins Stay Constrained: Report

  • 9% YoY revenue growth driven partly by GST cuts
  • Volume growth improved to +6% YoY
  • Margin expansion limited by price corrections & competition
  • GST-related restocking boosted Q3 sales
  • Growth sustainability hinges on excluding GST benefits
2 min read

FMCG margin gains may stay constrained despite 9% YoY revenue growth in Q3FY26: Report

FMCG sector sees 9% YoY revenue growth in Q3 FY26, but GST adjustments and price corrections limit margin expansion, says Systematix report.

"Consumer Staples Ex-GST growth crucial; margin gains could be limited - Systematix Group Report"

New Delhi, February 17

FMCG companies' margin gains could remain limited despite reporting aggregate revenue growth of about 9 per cent year-on-year in the third quarter of FY26, as growth was partly driven by GST-related adjustments, price corrections in key categories, and continued competitive pressure, according to a report by Systematix Group.

The report noted that FMCG companies, also referred to as consumer staples companies, delivered approximately 9 per cent YoY revenue growth for the top companies, supported by volume growth of +6 per cent YoY.

Although this marked a meaningful improvement compared with revenue growth of +7 per cent in 2QFY26 and +5 per cent in 3QFY25, the report highlighted that margin expansion may remain limited as part of the revenue growth was supported by GST cuts and restocking activity rather than strong pricing power.

It stated, "Consumer Staples Ex-GST growth crucial; margin gains could be limited".

The report stated that GST cuts in categories such as biscuits, noodles, dairy, snack foods, toothpaste, hair oils, soaps, chocolates, and coffee led to increases in volume, grammages and sales realisations, supporting overall growth.

In addition, the report noted that channel restocking during November-December also contributed to higher revenues. This followed significant GST-related trade disruption and destocking during September-October, which had impacted 2QFY26 sales by around 200-400 basis points.

While restocking helped improve sales performance in the third quarter, it does not necessarily translate into sustained margin improvement.

The report further stated that value growth declined in categories such as tea and edible oils due to price corrections, which limited revenue gains. Price corrections typically reduce realisations for companies, affecting their ability to improve margins.

At the same time, growth moderated in categories such as detergents and paints due to elevated competitive intensity. Increased competition in these segments restricts companies' ability to increase prices, which in turn limits profitability expansion.

Despite these challenges, the report noted that FMCG companies saw improved volume growth and overall revenue performance during the quarter.

However, it emphasised that consumer staples companies' growth excluding GST-related benefits will be crucial in determining the sustainability of revenue and margin performance going forward.

So the report indicated that while FMCG companies reported improved revenue growth in 3QFY26, margin gains could remain limited due to GST-related factors, price corrections in certain categories, and continued competitive pressures across key segments.

- ANI

Share this article:

Reader Comments

P
Priya S
As a consumer, I've noticed the price corrections in edible oil and tea. It's a relief for the household budget, but clearly it's squeezing the companies. Tough spot to be in - if they raise prices, volume falls. If they don't, margins suffer. 🤔
R
Rohit P
The report mentions detergents and paints facing high competition. Absolutely true. Walk into any supermarket, the number of brands fighting for shelf space is insane. Companies are spending more on promotions than ever, which definitely hits the bottom line.
S
Sarah B
Interesting analysis. The "Ex-GST growth" metric seems to be the key takeaway. It strips away the temporary boost and shows the underlying health of consumer demand. Would be helpful if future reports highlighted this figure more prominently.
V
Vikram M
Volume growth of +6% YoY is actually a positive sign, bhai! It shows demand is there at the ground level, especially in rural areas which were struggling. Margins will follow if this volume trend sustains. Let's not be too pessimistic.
K
Kavya N
The constant GST tinkering causes so much disruption for the trade. First destocking, then restocking... it creates artificial volatility in sales numbers. Hope the government provides more stability in tax rates for essential goods.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Leave a Comment

Minimum 50 characters 0/50