India’s consumer staples sector is witnessing a broadening recovery in consumption, with volume growth emerging as a key driver of revenue in the first quarter of FY27, even as rising commodity costs and geopolitical uncertainties continue to put pressure on margins, according to a report by Equirus Securities.
The report, “Consumer Staples 1QFY27 Result Review – Recovery broadens, but margins remain a work in progress”, said revenue growth across its consumer-staples coverage stood at 15% year-on-year in Q1 FY27, broadly in line with expectations. It said volume growth is increasingly driving topline performance, although the consumption recovery is not yet fully normalised.
Nestlé India and Marico emerged as key performers, with Nestlé reporting 25% revenue growth, largely volume-led, while Marico recorded 23% revenue growth and 11% domestic volume growth, its highest in 20 quarters. HUL, Godrej Consumer Products, Tata Consumer Products and Dabur also reported positive underlying volume growth, while CCL Products recorded around 20% volume growth.
The broader volume trend also remained encouraging. Volume growth in Q1 FY27 stood at 5% for Hindustan Unilever, 20% for Varun Beverages, 9% for Britannia Industries, 7% for Godrej Consumer Products, 13% for Tata Consumer Products, 11% for Marico, 5% for Dabur India, 7% for Colgate-Palmolive India and 16% for Emami.
The report said rural demand continues to remain resilient, while urban consumption is gradually improving. Recent improvement in rainfall and continued government support through MSPs have provided confidence on rural demand for the balance of FY27, although weather-related risks remain a monitorable.
At the same time, the report flagged input-cost inflation as the key near-term risk to margins. Commodity prices have moved higher across several important FMCG inputs. As of August 10, palm oil prices were around 20% higher year-on-year, crude oil was up around 35%, HDPE prices had risen 28%, while sugar was up 11% year-on-year and 13% sequentially. Mustard oil was also around 7% higher year-on-year.
Equirus said the impact of commodity inflation is likely to be more pronounced for home and personal care (HPC) companies, given their greater exposure to crude- and palm-oil-linked derivatives, packaging materials and other petroleum-linked inputs. In contrast, food and beverage companies remain relatively better protected due to earlier pricing actions, procurement efficiencies and favourable product mix.
The pressure is already visible in gross margins. While Tata Consumer Products expanded gross margin by 257 basis points, Nestlé by 205 bps and Britannia by 119 bps, Godrej Consumer Products saw gross margin contract 261 bps, while Emami’s gross margin declined 360 bps year-on-year.
Despite the improvement in demand, operating margins remain a key monitorable as companies continue to invest in brands, innovation and distribution. For instance, Colgate’s gross margin expanded 104 bps year-on-year, but its EBITDA margin declined 144 bps as advertising and promotional expenditure rose 34%. Marico, however, expanded EBITDA margin by 36 bps despite a 25% increase in advertising and promotion spending.
The report expects pricing actions, productivity measures and easing of some input costs to support margin recovery over the coming quarters. Britannia expects a 1.5-25 pricing benefit, while Emami expects calibrated pricing and productivity initiatives to offset input-cost inflation during FY27. Mrs Bectors expects the impact of commodity inflation to peak in 2QFY27, with most of the pressure expected to be recovered from 3QFY27 onwards.
Equirus expects the broader margin recovery to become more visible in the second half of FY27, although the pace is likely to vary across companies depending on their commodity exposure, pricing power, brand investments and product mix. The report remains constructive on select companies, including Marico, Britannia Industries and Tata Consumer Products among large caps, and CCL Products, Mrs Bectors Food Specialities and Zydus Wellness among mid- and small-cap companies.
The report’s key takeaway is that the FMCG sector has moved beyond the earlier demand-led concerns, with volumes showing a broader recovery. However, sustaining that momentum while protecting margins amid rising input costs will remain the key challenge for companies through FY27.
