Your grocery bill might not be the only thing rising—FMCG giants are facing a 'profit squeeze' that could change everything.

FMCG companies are likely to face operating margin pressure in the September quarter of FY27 due to rising crude-linked derivatives, palm oil, sugar and other input costs. While companies such as Marico and Dabur expect double-digit revenue growth, profitability may be affected by inflation and uneven monsoon conditions. Businesses are relying on price hikes, favourable product mix and cost-saving measures to offset rising expenses.

Rising input costs are likely to put pressure on operating margins for Indian fast-moving consumer goods companies in the September quarter, even as resilient demand and growth in key product categories support revenue expansion.

A sharp rise in crude oil and its derivative products used in packaging, along with a persistent inflationary trend in various commodities and deficit rainfall, has increased cost pressures across companies depending on their product mix, pricing power and cost-saving measures.

A report from brokerage ICICI Direct said higher crude and crude-derivative prices, coupled with increases in other key input costs, are likely to affect earnings before interest, taxes, depreciation and amortisation (EBITDA) margins of most home and personal care companies.

"Spike in the crude oil/crude derivative prices coupled with increase in the other key input prices will have impact on the EBITDA margins of most of the home care and personal care companies under coverage," it said.

While revenue growth is expected to remain in double digits for several leading FMCG (fast-moving consumer goods) players, operating profit growth could lag sales expansion as companies absorb part of the cost inflation, it said.

"We expect Q2FY27 performance for most FMCG companies to be a mixed bag, with revenue growth expected to be in double digits while EBITDA growth will be lower compared to revenue growth due to a spike in commodity prices. Lesser rainfall in most parts of India is likely to affect the farm output and would lead to moderation in the rural demand," it said.

Further spike in food inflation might have an impact on the urban demand in the quarters ahead. The report also predicts "inflated input prices will put a dent on margins in H2FY27".

Companies, including

Marico and Dabur, have estimated double-digit revenue growth for the September quarter, supported by their core businesses and improving demand across select categories.

Dabur India, in its quarterly business update, said. "Inflationary pressures continue to remain elevated, particularly in HPC and OTC & Ethicals".

"Operating margins were impacted by inflationary pressures during the quarter; partly offset by calibrated price increases and ongoing cost-saving initiatives," it said.

Marico, however, expects a stronger margin performance, highlighting the divergent impact of commodity prices on individual companies.

The maker of Parachute coconut oil and Saffola said crude-linked derivative prices rose further during the quarter, while copra prices remained around 35 per cent below their peak levels.

"Among key inputs, the cost of crude-linked derivatives elevated further, while copra prices remained rangebound at 35 per cent below peak levels. We expect strong acceleration in gross margin on a year-on-year basis led by favourable portfolio mix and tailwind from copra prices," it said.

Other commodities, including palm oil and sugar, also remain important cost variables for companies across personal care and packaged foods.

Godrej Consumer Products Ltd (GCPL) also acknowledged the same and said, "Input cost pressures intensified during the quarter".

"While certain commodities had shown signs of moderation towards the end of Q1 FY27, Q2 witnessed renewed inflation across several key raw-material baskets, including crude-linked derivatives, palm oils, and other commodity inputs," it said.

However, the company, which owns flagship brands such as HIT, Goodknight, Godrej No. 1, and Cinthol, expects to deliver another strong quarter in Q2 FY27 despite "consumption being impacted by uneven monsoon conditions led by an intensifying El-Nino and inflationary pressures across several commodity-linked inputs, albeit a supportive comparator this quarter".

According to a Nomura report, several raw material prices remained above year-ago levels in September despite some sequential softening, potentially putting pressure on margins in the September quarter. Higher crude and high-density polyethylene prices could increase packaging costs, and elevated palm oil and sugar prices may weigh on select consumer businesses.

Companies have been responding through calibrated price increases, changes in product mix, procurement efficiencies and cost-control measures. However, the extent to which higher costs can be passed on to consumers remains a key consideration, particularly during the festive season when companies seek to sustain consumption momentum.