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MOSL: CONSUMER-Agri commodity prices soften from their peaks benefiting Staple companies

CONSUMER: Agri commodity prices soften from their peaks benefiting Staple companies

 

In this edition of our Consumer sector update, we analyze the price movement in key commodities and identify companies under our coverage that could benefit from or be negatively impacted by it. It is relevant to analyze price trends from the perspective of 1QFY22 earnings and beyond, as topline growth in the sector is expected to gradually recover post the lifting of lockdowns announced by most states, with the decline in COVID-19 cases and the vaccination drive continuing at a healthy pace. The impact on Discretionaries would be particularly notable as sales were significantly affected due to reduced mobility for the better part of 1QFY22.

 Agri commodity prices ease from their peaks

• Companies under our coverage are largely expected to report strong cumulative growth numbers on account of the low base set in FY21. While India struggled with the second COVID wave for a better part of 1QFY22, manufacturing and supply chain operations were not affected as they were last year, with companies better prepared to manage the situation. As COVID-19 cases reduce and the nationwide vaccination drive continues, companies indicated that demand had recovered towards the end of 1QFY22. In-home consumption, sales of hygiene products, spurt in sales of healthcare products, and (by and large) continued good rural demand are likely to contribute to growth in Staples. With higher commodity inflation witnessed in 1QFY22, most companies are expected to witness a compression in their gross margins sequentially. However, price hikes taken by most companies and easing commodity prices should augur well over the medium term.
• Crude prices continue to inch higher: Crude prices continue to move upwards, with a 13.1% QoQ increase in 1QFY22. The increase is even sharper when compared to FY21, with prices being 118% higher YoY owing to the low base formed in 1Q (touched a low of USD17.3/bbl in Apr’20). Prices were up 7.4% MoM at USD73.1/bbl (monthly average for Jun’21).