The fast-moving consumer goods (FMCG) sector is projected to witness a 7-9% rise in revenue for the current fiscal year, slightly lower than the 8-9% growth rate of the past two years. The growth will be primarily driven by higher volume sales, supported by a gradual recovery in rural demand. Meanwhile, urban demand is expected to remain stable, albeit on a higher base.
While product realizations are anticipated to remain range-bound, and even decrease in some categories, due to price cuts in response to moderated raw material prices, previous years’ revenue growth was driven by higher realizations.
Lower costs of raw materials, particularly edible oil, crude derivatives, and chemicals, are expected to offset increased selling and marketing expenditures. This is projected to result in a 50-100 basis point improvement in operating margin, restoring it to pre-pandemic levels of 20-21% after consecutive years of erosion.
According to a study by CRISIL Ratings (released in July 2023), which analyzed 76 Indian FMCG companies accounting for approximately 35% of the sector’s estimated revenue of ₹5.2 lakh crore in the last fiscal year, the sector is likely to witness a volume expansion of 4-6% in the current fiscal year. This growth will be driven by a gradual recovery in rural demand, representing 35-40% of overall demand, and steady urban demand, accounting for 60-65% of overall demand. However, the impact of El Niño conditions on monsoon rainfall patterns remains a potential risk that could affect rural demand.
Rural demand started to recover in the last quarter of the previous fiscal year after six consecutive quarters of decline. This recovery was supported by increasing rural income and decreasing rural inflation levels. The demand revival is expected to continue in the current fiscal year, fueled by ongoing inflation moderation, significant increases in minimum support prices for key crops, and stable non-agricultural income indicators.
The urban segment, which witnessed double-digit growth in the past two fiscal years, will continue to contribute to overall growth in the current fiscal year. This growth can be attributed to rising disposable incomes, the growing influence of e-commerce, the expansion of contact-based services, and the progress of premiumization in the home care and personal care segments.
Aditya Jhaver, Director at CRISIL Ratings, stated that revenue growth may vary across product segments and firms but will largely be driven by volume. The food and beverages segment, accounting for approximately 50% of FMCG sector revenue, is expected to grow by 9-10% in the current fiscal year. The personal care segment, accounting for the remaining 25% of sector revenue, is likely to see sustained growth of 7-8% due to the revival of rural demand and steady urban demand.
In response to market conditions, FMCG companies have implemented price cuts in key categories such as edible oil, soaps, and detergents to stimulate demand, as the prices of essential inputs like crude oil, linear alkylbenzene, and soda ash have softened.