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FMCG companies to add to ads after input cost subtractions

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Kolkata: Consumer goods companies are readying to step up their advertising and promotion expenditure in the next few quarters, aided by the improvement in gross margins in the past three-four quarters due to lower input costs.

Fast-moving consumer goods (FMCG) companies such as Dabur, Marico and Godrej Consumer Products said in investor notes that advertising, promotion and category development spending had gone up in the December quarter and some said it will increase further in the next few quarters.

This year is filled with events and companies will lap up the opportunity, said Parle Products’ senior category head B Krishna Rao.

“In the next 10 days advertising spending will go up for Ram Mandir, then Lok Sabha elections and multiple sport events such as IPL, T20 World Cup and Olympics. At the same time, spending will also be increased to try to improve demand,” he said.

BNP Paribas said in a report this week that the gross margin improvement trend will continue due to lower input costs, but ad spends will also remain elevated. FMCG firms advertise in sports events where ad costs are expensive, it said.

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Nuvama Institutional Equities said in a report earlier this month that for a few FMCG companies, advertising expenditure had already breached the pre-pandemic levels. With improving margins and the strategic impetus to beat local competition, ad spends will remain competitive in 2024, it said.

Dabur India said in an investor note last week that gross margins are likely to expand, led by moderating inflation and cost-saving initiatives. “A significant portion of gross margin expansion will be channelled into enhancing advertising and promotion spends. Consequently, operating profit is expected to grow slightly ahead of the revenue and post an improvement in year-on-year operating margins,” it said.

Consumer goods companies spend 3-14% of their sales on advertising and promotions.

Marico too said last week that advertising and promotion spends were ramped up in line with its strategy to strengthen the long-term equity of both the core and new franchises.

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