Higher volume is expected to drive revenue growth, amid support from gradual recovery in rural demand. On the other hand, urban demand will see stable growth on a higher base.
“After subdued volume growth in the past two fiscals at 1-3%, the sector is likely to record a 4-6% volume expansion this fiscal, supported by gradual recovery in rural demand, and steady urban demand. That said, any adverse impact of El Niño conditions on rainfall patterns this monsoon season will have a bearing on rural demand and remains monitorable,” said Anuj Sethi, Senior Director, CRISIL Ratings.
Product realisations are foreseen range-bound — even moderating in a few categories — this fiscal because of price cuts in certain products where raw material prices have moderated. In contrast, revenue growth in the past two fiscals was driven by higher realisations.
Lower raw material costs, primarily of edible oil, crude derivatives and chemicals, will help offset higher selling and marketing spend, leading to a 50-100 basis point improvement in operating margin to pre-pandemic levels of 20-21%, compared with consecutive years of erosion.
A CRISIL Ratings study of 76 FMCG companies, which accounted for about 35% of the estimated Rs 5.2 lakh crore revenue of the sector last fiscal, indicates as much.In its quarterly earnings update on Wednesday, Godrej Consumer Products said overall consumer demand remained steady as seen in the previous few quarters in India. “Our organic business continued to deliver robust performance with double-digit volume growth. Sales growth was marginally higher than mid-single digit as we passed on the benefits of lower input costs to our consumers. Sales growth will be in high-single digits,” it said. Demand from the rural segment began to recover in the last quarter of fiscal 2023 after being negative for six consecutive quarters. This was supported by growing rural income in the last two quarters, coupled with falling rural inflation levels. Demand recovery is expected to sustain this fiscal with continuing moderation in inflation, healthy hike in minimum support prices for key crops, and stable non-agricultural income indicators.
The urban segment, which grew in double-digits the past two fiscals, will continue to support overall growth this fiscal owing to increasing disposable incomes, continuing rise of e-commerce, growth of contact-based services, and progress on premiumisation in the home care and personal care segments.
On their part, the players have undertaken price cuts in key categories such as edible oil and soaps and detergents to stimulate demand as prices of key inputs such as crude oil, linear alkylbenzene and soda ash have softened.
“Revenue growth would vary across product segments and firms, but will largely be volume-driven. While food and beverages is expected to grow 9-10% this fiscal, home care should slow to 6-7% after price cuts. Personal care will see continued traction growing at 7-8%, owing to revival in rural demand and steady urban demand,” said Aditya Jhaver, Director, CRISIL Ratings.
Any sharp movement in agri-based and crude-linked raw material prices, as well as impact of El Niño on farm income, will bear watching.
