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Moderate Rural Rebound Expected to Drive FMCG Sector’s Revenue Growth at 7-9% in FY24: Crisil

Anticipated Slow Recovery in Rural Demand to Fuel 7-9% Revenue Growth for FMCG Industry in FY24: Crisil

A recent report suggests that the fast-moving consumer goods (FMCG) sector is expected to witness a modest growth of 7-9 percent in the current fiscal year, primarily driven by a gradual recovery in rural demand. The report, released by Crisil Ratings, highlights that while urban demand, which constitutes a significant portion of the market, is expected to remain stable due to a higher base, the volume growth will largely come from rural markets.

However, the report notes that product prices are anticipated to remain stable or even decrease in some categories due to price cuts resulting from the moderation of raw material costs. This is in contrast to the revenue growth observed in the past two fiscal years, which was driven by higher product prices.

The operating margins of FMCG companies are predicted to improve by 50-100 basis points, reaching pre-Covid levels of 20-21 percent. This improvement can be attributed to lower raw material costs, particularly for edible oil, crude derivatives, and chemicals, which will help offset higher selling and marketing expenses.

The report is based on the analysis of 76 FMCG companies, representing approximately 35 percent of the estimated Rs 5.2 lakh-crore FMCG sector.

According to Anuj Sethi, a senior director at Crisil Ratings, the sector is expected to achieve a volume expansion of 4-6 percent in the current fiscal year, following subdued volume growth in the past two years. This growth will be supported by a gradual recovery in rural demand and steady urban demand. However, the report highlights that the growth projections are subject to the impact of El Niño conditions on the monsoons.

Rural demand, which experienced a negative trend for six consecutive quarters, began to recover in the last quarter of the previous fiscal year (FY23). This recovery was driven by increasing rural income, declining rural inflation, and is expected to continue in the current fiscal year, supported by sustained moderation in inflation, higher minimum support prices for key crops, and stable non-agricultural income indicators.

On the other hand, the urban segment, which witnessed double-digit growth in the past two fiscal years, will contribute to overall growth due to rising disposable income, the growth of e-commerce and contact-based services, and the progress of premium products in the home care and personal care segments.

To stimulate demand, several FMCG companies have implemented price cuts in essential categories such as edible oil, soaps, and detergents, as the prices of key raw materials like crude oil, alkyl benzene, and soda ash have softened.

According to Aditya Jhaver, a director at Crisil Ratings, the revenue growth in the FMCG sector will vary across product segments and companies, but will predominantly be driven by volume. Food and beverages, which account for 50 percent of the sector’s revenue, are expected to grow by 9-10 percent in the current fiscal year. Home care, contributing 25 percent of the sector’s revenue, is likely to experience slower growth at 6-7 percent after implementing price cuts. Meanwhile, personal care, representing 25 percent of the sector’s revenue, is expected to continue growing at a rate of 7-8 percent, supported by the revival of rural demand and steady urban demand.

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