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Fast-moving consumer goods (FMCG) sector is expected to grow 7-9% this fiscal compared with about 8.5% in the last fiscal as companies increased the prices of their products due to higher input costs, according to a report by CRISIL Ratings. However, volume growth will be just 1-2% compared with 2.5% last fiscal, the report said.
The estimates are according to analysis of 76 FMCG companies, which account for 35 per cent of the Rs 4.7 lakh crore annual revenue of the sector.
The rating agency said that the FMCG sector will witness similar revenue growth in the next fiscal driven by volumes. The rating agency said that the growth will be due to improved rural demand with inflation gradually cooling. Meanwhile, urban demand continues to remain steady.
CRISIL Ratings Senior Director, Anuj Sethi, said, “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. That said, in both urban and rural areas, consumer preference is shifting to smaller pack sizes, which too is weighing on volume growth.”
Higher minimum support prices for key crops and a good harvest should aid rural growth in next fiscal and help gradual recovery in rural demand. Besides, increased spends on rural infrastructure by the government, leading to improved rural income levels, would also support growth.
The rating agency noted that operating margin will moderate 100-150 basis points to 18-19% this fiscal due to higher input costs (primarily wheat, milk, maize, rice, crude derivatives) and rise in selling and marketing expenses. This is despite price hikes undertaken by FMCG players in the past 4-5 quarters.
However, price of some raw materials, such as edible oil and sugar, is expected to ease which will support profitability during the second half of the current fiscal. Besides, operating margins is likely to improve by 50-70 bps in the next fiscal, on the back of better volume driven growth and coverage of costs, almost reaching pre-pandemic levels.
“The food and beverages segment, which constitutes around half of the sector’s revenue, will grow 8-10% this fiscal. Meanwhile, consumption of personal care and home care segments, which account for the balance half of the sector’s revenues, will grow 6-8%,” said Aditya Jhaver, Director, CRISIL Ratings.
The rating agency noted that credit profiles of FMCG companies are expected to be stable supported by healthy cash accruals, strong balance sheets, low dependency on debt, and sizeable liquid surpluses.