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MOSL: CONSUMER: Commodity prices stay stable on a sequential basis

CONSUMER: Commodity prices stay stable on a sequential basis

 

In this edition of our Consumer sector update, we analyzed the price movement in key commodities and identified 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 2QFY22 earnings and beyond as topline growth in the sector is expected to rebound on the back of pent up demand and a low base. 

Agri and non-Agri commodity prices display stability

• Companies under our coverage are largely expected to report strong cumulative growth numbers on improving mobility, pent up demand before the festive season, and the low base set in 2QFY21. Recovery after the second COVID wave was much faster, with companies better prepared to manage the situation. As the nationwide vaccination drive continues, managements indicated that demand had been improving week-on-week in 2QFY22. Discretionaries are expected to see a healthy rebound, owing to the unfurling of pent up demand and with the festive/wedding season around the corner. With commodity inflation refusing to ease even in 2QFY22, most companies are expected to witness a compression in their gross margins YoY. However, price hikes taken by most companies should augur well over the medium term.
• Crude prices continue to inch higher: Crude prices continue to head upwards, with a 5.5% QoQ increase in 2QFY22. The increase is even sharper when compared to FY21, with prices being 69.5% higher YoY owing to the low base formed in 2QFY21 (touched a low of USD38.9/bbl in Sep'20). Prices rose 4.3% MoM to USD73/bbl (monthly average for Sep'21 till date).