Fast-moving consumer goods (FMCG) industry revenue is anticipated to increase by 7-9% this fiscal year, which is a somewhat slower rate than the 8-9% growth rate seen in the previous two fiscal years, according to Crisil.
With support from a slow but steady rebound in rural demand, more volume is anticipated to boost revenue growth. On the other hand, urban demand will continue to expand steadily on a stronger basis.
“The industry is anticipated to achieve a 4-6% volume expansion this fiscal year, underpinned by a gradual rebound in rural demand and steady urban demand. Volume growth in the previous two fiscal years was muted at 1–3%. Anuj Sethi, Senior Director, CRISIL Ratings, stated that any unfavourable effects of El Nino conditions on rainfall patterns during the monsoon season will have an effect on rural demand and remain monitorable.
Due to price reductions in some products where raw material prices have moderated, product realisations are predicted to be range-bound this fiscal year and even to be decreasing in a few categories. In contrast, stronger realisations in the last two fiscal years were the primary driver of revenue growth.
Lower costs for raw materials, mainly for edible oil, crude derivatives, and chemicals, will help balance higher spending on sales and marketing, improving operating margins by 50 to 100 basis points to pre-pandemic levels of 20 to 21% as opposed to years of decline.
According to a CRISIL Ratings analysis of 76 FMCG firms, which together generated around 35% of the sector’s estimated Rs 5.2 lakh crore in revenue in the previous fiscal year,
Godrej Consumer Products reported on its quarterly financial performance on Wednesday, stating that overall consumer demand in India remained stable, similar to the previous few quarters. “Our organic business continued to perform well, registering a double-digit volume increase. As we passed on the advantages of lower input prices to our customers, sales growth was somewhat higher than mid-single digits. High-single-digit sales growth is expected, according to the statement.
Following six quarters of negative demand, the rural segment’s demand started to improve in the final quarter of fiscal 2023. The recent two quarters of rising rural income and declining rural inflation levels helped to reinforce this. This fiscal demand improvement is anticipated to be sustained by continued moderation in inflation, a good increase in minimum support prices for important crops, and steady non-agricultural income indicators.
Due to rising disposable incomes, the continued growth of e-commerce, the rise of contact-based services, and progress on premiumization in the home care and personal care segments, the urban segment, which grew in double digits the last two fiscals, will continue to support overall growth this fiscal.
Players have reduced prices in important categories, including edible oil, soaps, and detergents, to boost demand as the cost of essential inputs like crude oil, linear alkyl benzene, and soda ash has dropped.
Revenue growth would differ between product categories and companies, but it would primarily be volume-driven. Food and beverage growth is predicted to be 9–10% this fiscal year, but with price reductions, home care growth will likely be 6-7%. According to Aditya Jhaver, Director, CRISIL Ratings, “Personal care would continue to gain momentum, rising at 7-8%, as a result of stabilising urban demand and a recovery in rural demand.
It will be important to keep an eye on any sudden changes in the pricing of raw agricultural and crude-linked materials, as well as the effect of El Nino on farm revenue.
