Caught between costly inputs and cautious buyers, India Inc takes a hit

Companies across India's consumer goods, automobile, paints and other sectors are raising prices to offset the surge in input and logistics costs triggered by the West Asia conflict. However, incomplete pass-through is squeezing operating margins, as businesses absorb part of the increase to protect demand and sales volumes.

The cost pressures have spread beyond crude oil to packaging materials, plastics, rubber, chemicals, metals and edible oils, while disruptions to shipping routes have pushed up freight expenses.

Also Read: Hindustan Unilever looks to stronger FY27, but commodity inflation threatens to squeeze margins


"The cost shock since the West Asia conflict began in late February 2026 has been broad-based, not limited to oil-intensive sectors," Jitin Makkar, senior vice president and group head at ICRA told ET Online.

West Asia conflict pushes up energy, commodity and logistics costs

Makkar identified three channels through which the conflict has affected corporate costs: direct energy expenses, higher prices of crude derivatives and rising logistics costs.

The first includes fuel, power, petcoke and coal used by process industries, as well as aviation turbine fuel (ATF) for airlines.

The second covers crude-linked inputs such as packaging materials, plastics, rubber and chemicals, which are used across several manufacturing and consumer-facing industries.

The third channel is logistics. Container spot rates on key shipping routes have risen to more than 300% above pre-crisis levels, with war-risk surcharges adding to the increase, according to ICRA.

Road transportation expenses have also risen, adding to the cost of moving goods across supply chains.

The inflationary pressure has extended to commodities that are not directly linked to crude oil. Basic metals inflation stood at 17% in September 2026, while palm oil and sugar prices were about 21% and 18% higher year-on-year, respectively, Makkar said.

Companies have so far passed on only part of these increases to consumers, with the remaining burden reflected in lower margins. Most have opted for staggered price increases and absorbed a portion of the cost escalation to protect volumes, particularly during the festive season.

The inflationary pressure has extended to commodities that are not directly linked to crude oil. Basic metals inflation stood at 17% in September 2026, while palm oil and sugar prices were about 21% and 18% higher year-on-year, respectively, Makkar said.

Also Read: Low-sugar fizz, high-cost squeeze: Varun Beverages battles margin pressure

Companies have so far passed on only part of these increases to consumers, with the remaining burden reflected in lower margins. Most have opted for staggered price increases and absorbed a portion of the cost escalation to protect volumes, particularly during the festive season.

HUL, Asian Paints and Maruti Suzuki face margin pressure despite price hikes

The September-quarter performance of consumer goods, paints and automobile companies illustrates the difficulty of offsetting higher input costs through price increases alone.

Hindustan Unilever (HUL) raised prices by an average of around 7.5% in the September quarter, but its EBITDA margin still contracted by around 200 basis points year-on-year, according to ICRA's assessment.

The company's consolidated EBITDA margin stood at 22.6% in the quarter, down 140 basis points from the year-ago period.

HUL said commodity inflation was expected to continue in the short term, while retaining its consolidated EBITDA margin guidance of 22-24%.

Asian Paints also faced a combination of sharp raw material inflation and constraints in material availability, with geopolitical disruptions affecting its operating environment. The company said the full impact of these pressures was felt in the September quarter.

"We calibrated price increases and absorbed part of the cost inflation to protect consumer demand in this challenging environment," Asian Paints said in its commentary on the quarterly results.

The company reported a standalone EBITDA margin of 17.1% for the quarter. ICRA's assessment put the year-on-year margin contraction at around 200 basis points, reflecting the pressure from higher input costs and the company's decision to absorb part of the increase rather than fully pass it on.

Automakers have also resorted to repeated price increases to counter rising costs. Maruti Suzuki raised prices three times in FY2027, but its EBITDA margin fell to 8.9% in the September quarter from 12% in the corresponding period last year, Makkar said.

The carmaker had announced a price increase of up to Rs 20,000 on select models in September, citing persistent inflationary pressures and elevated costs.

The pressure is also visible in other manufacturing businesses. Havells said its contribution margins softened year-on-year, mainly because of its cables business, where the fall in aluminium prices during the September quarter weighed on margins.

Nestle increases brand spending as food inflation persists

The pressure on costs has not prevented all consumer companies from reporting strong revenue growth, but businesses are having to balance investments in brands and growth with the need to manage input expenses.

Nestle India reported a 20.5% increase in total sales to Rs 6,782.2 crore in the September quarter, supported by double-digit volume growth across its product groups. Its profit after tax rose 36.3% to Rs 1,026.8 crore, while EBITDA margin stood at 23.8%.

However, the company also increased advertising and marketing expenditure by 46% as it stepped up investments behind its brands.

"Rising inflation, particularly food inflation, is a reality," Nestle India chairman and managing director Manish Tiwary said. The company was focusing on innovation, renovation, brand investments and operational efficiencies to mitigate commodity cost pressures, he added.

Also Read: Asian Paints says Middle East sales held strong even as 'full impact' of cost inflation was felt in Q2

Nestle's commodity outlook also points to continued cost pressures across different categories. While coffee and wheat prices are expected to remain range-bound, sugar and edible oils have stabilised at elevated levels. Cocoa remains volatile because of weather-related crop concerns in key producing regions, while milk prices have strengthened seasonally but are expected to ease as supplies increase.

ITC, meanwhile, said its agri business continued to be affected by disruptions linked to the West Asia conflict, including delayed customer call-offs, constrained availability of shipping lines and a sharp escalation in ocean freight costs. The company also flagged imported inflation and El Niño as downside risks to its growth outlook.

ICRA expects profit growth to lag revenue growth in H2 FY27

The pressure on company margins is reflected in ICRA's assessment of corporate earnings. In August, the ratings agency estimated that India Inc's aggregate operating profit margin would contract by 100-150 basis points year-on-year in the September quarter, even as revenue growth was projected at 13-15%. Results declared so far appear consistent with that assessment, Makkar said.

The exposure is highest in sectors where energy and crude derivatives account for a significant share of production costs and companies have limited pricing power. These include oil marketing companies, airlines, cement, paints and chemicals, home and personal care, and passenger vehicles.

Export-oriented businesses are also vulnerable as they face higher input costs alongside weak global demand. However, the depreciation of the rupee against the US dollar offers some cushion to exporters, Makkar said.

Looking ahead, ICRA expects profit growth to continue lagging revenue growth in the second half of FY2027. Year-on-year margin performance is likely to remain unfavourable because the corresponding period last year benefited from lower crude prices of around $60-65 per barrel.

Sequentially, however, margins are expected to improve as the cumulative impact of price increases feeds through and companies' cost-saving measures begin to take effect.

"A meaningful part of the cost pressure is cyclical. Price increases are still catching up with costs," Makkar said.

The pace of margin recovery will therefore depend on how quickly companies can bridge the gap between higher input costs and selling prices without hurting consumer demand, while continuing to navigate volatility in commodity prices and supply chains.