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The FMCG sector delivered a steady performance in Q2FY27, with demand holding up across key consumption categories despite a challenging operating environment. The aggregate revenue growth for companies under our coverage stood at 22.1% YoY, supported by a healthy volume growth.

Consumption trend remained favourable in this quarter, with companies witnessing broad-based demand across product categories. Rural markets continued to provide support to overall consumption, while urban demand showed a gradual improvement. Consumers continued to gravitate towards differentiated and higher-value offering, supporting premium product portfolios.

On the cost front, the operating profit remained challenging due to rising input costs, particularly crude derivatives, palm oil and other key commodities. Companies have undertaken cumulative price hikes of 5–10% to mitigate raw material inflation; however, the cost outlook remains uncertain, with continued volatility in crude prices (+45%). Consequently, gross margins are likely to remain under pressure in the near term, prompting companies to consider further calibrated price increases across select categories. However, pricing actions remain measured, with companies prioritising volume retention and market share over complete cost pass-through. An increased focus on cost efficiencies, savings initiatives and operating leverage is expected to provide relatively better cushioning to EBITDA margins, despite near-term gross margin pressures.

Going forward, the pace of consumption recovery, sustainability of volume growth, further movement in commodity prices and the extent of price passthrough will be key monitorables for the sector. While the demand environment remains constructive, the ability to navigate input cost pressure without compromising volume growth will determine the trajectory of margin and earnings across FMCG companies.

VBL: The stock has rallied ~10% post results. Given the limited upside potential from current levels, we change our rating from BUY to ADD (TP INR 460 – Un-change). However, the long-term growth thesis remains intact.

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