In the next 12 months, consumer goods companies would see a revival, both in volume and margin terms, with an anticipated revival in the rural sector.
With a few state elections and expected populist budget, the rural sector is anticipated to be prime beneficiary. This coupled with improving macros and good monsoon after two consecutive droughts, also augur well, said the report on the consumer goods sector brought by Edelweiss.
After four quarters of muted growth, the consumer goods sector is likely to clock high single to low double digit volume growth in the October-December quarter of the current fiscal.
Volumes of consumer goods companies, which rebounded marginally from GST-related destocking in the July-September quarter of current fiscal, are likely to see near normalcy.
Gross margin expansion will be soft since companies have hardly taken price hikes and have in fact cut prices due to reduced GST rates.
The report said the sector revenue growth will revive from the second half of the current financial year. With GST pangs largely behind, volumes of most companies to clock high single to low double digit growth.
Prices of raw materials like copra, monomers and menthol, among others, have remained elevated. Prices of other raw materials like sugar, wheat flour and milk have remained flat to slightly declining.
To offset rising raw material cost, companies have not been able to take required price hikes, resulting in some gross margin compression. With cost rationalisation, calibrated EBITDA margin expansion can be expected.