FMCG Sector to Witness 7 to 9 pc Growth, Volume to Grow 1-2 pc

Revenue from the fast-moving consumer goods (FMCG) sector will grow 7-9 percent this fiscal compared to the 8.5 percent growth the sector witnessed last year, primarily driven by price hikes.

According to a report by Crisil Ratings, the sector will report volume growth of only 1-2 percent compared with 2.5 percent last fiscal. In what could bring positive news for the sector, softening of some raw material prices, such as edible oil and sugar, will help improve the profitability levels of companies in the second half of the current fiscal. 

“Next fiscal, too, the sector should see an almost similar pace of growth, but driven by volumes. That’s because rural demand is expected to improve with inflation gradually beginning to moderate, even as urban demand will continue to remain steady. Operating margin will see a 100-150 basis points moderation to 18-19 percent this fiscal on higher input costs (primarily wheat, milk, maize, rice, crude derivatives) and a rise in selling and marketing expenses, despite price hikes undertaken by FMCG players over the last 4-5 quarters," said analysts at the ratings firm.

High inflation has led to a jump in the prices of daily goods as a result, sector volumes have remained muted.

“Similar to fiscal 2021, volume growth for the sector will remain subdued owing to sluggish rural demand (40 percent of overall FMCG demand) with inflation-led price hikes of 7-8 percent over the past 12 months. On the other hand, urban demand is less impacted by the inflationary pressures and will grow faster, led by increased direct-to-consumer (D2C) and sales through e-commerce channels," said Anuj Sethi, Senior Director, Crisil Ratings.

Next fiscal, however, higher minimum support prices for key crops and a good harvest should aid rural growth and help gradual recovery in rural demand, Sethi added. 

However, revenue growth will vary across categories.

“The food and beverages segment, which constitutes around half of the sector’s revenue, will grow 8-10 percent this fiscal, given their essential nature, and lower penetration in organized retail, compared to other segments. On the other hand, consumption of personal care and home care segments, which account for the balance half of the sector’s revenues, will grow 6-8 percent, with consumers being discrete and also resorting to down-trading, owing to higher prices," said Aditya Jhaver, Director, Crisil Ratings.