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Over the last two fiscal years, fast moving consumer goods companies faced strong headwinds from broad-based, multi-year high input cost inflation. But, reduced promotions, drop in grammage, calibrated price hikes and savings in operating costs contained the impact on operating margins over FY20-22.
While there are already signs of correction in the prices of some key commodities from their peak levels, companies are still holding high priced inventory, at least till Q2 FY23.
Thus, we expect sequential gross margin improvement from Q3 FY23 onwards as inflation at the basket level comes off. Over FY22-24E, assuming normalisation of input costs and partial reversal of price hikes, we expect material gross margin expansion, bringing it closer to FY20 levels.
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