Revenue of the fast-moving consumer goods (FMCG) sector is expected to grow 7-9 per cent this fiscal, a tad slower than the 8-9 per cent clip of the past two fiscals, as per a Crisil Ratings Study. Food and beverage segment is expected to lead the growth 

Gradual rural recovery in rural demand and stable growth in urban demand is expected to drive the growth. 

Anuj Sethi, Senior Director, Crisil Ratings, “After subdued volume growth in the past two fiscals (1-3 per cent ), the sector is likely to record a 4-6 per cent volume expansion this fiscal, supported by a gradual recovery in rural demand (35-40% of overall demand), and steady urban demand (60-65% of overall demand). That said, any adverse impact of El Niño conditions on rainfall patterns this monsoon season will have a bearing on rural demand and remains monitorable.”

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Lower raw material costs, primarily of edible oil, crude derivatives, and chemicals, will help offset higher selling and marketing spend, leading to a 50-100 basis point improvement in operating margin to pre-pandemic levels of 20-21 per cent compared with consecutive years of erosion, the report noted. 

A Crisil Ratings study of 76 FMCG companies, which accounted for ~35% of the estimated ₹5.2 lakh crore revenue of the sector last fiscal, indicates as much.

Demand from the rural segment began to recover in Q4 FY23 after being negative for six consecutive quarters. This was supported by growing rural income coupled with falling rural inflation levels. “Demand recovery is expected to sustain this fiscal with continuing moderation in inflation, healthy hike in minimum support prices for key crops, and stable non-agricultural income indicators,” the report noted. 

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The urban segment, which had been clocking growth in double-digits the past two fiscals, will continue to support overall growth this fiscal. This will be driven by factors, such as an increase in disposable incomes, continuing rise of e-commerce, growth of contact-based services, and progress on premiumisation in the home care and personal care segments.

With a reduction in raw material costs, FMCG companies have also undertaken some price cuts in key categories, such as edible oil and soaps and detergents, to stimulate demand l

Aditya Jhaver, Director, Crisil Ratings, “Revenue growth would vary across product segments and firms, but will largely be volume-driven. While the food and beverages (~50% of the FMCG sector revenue) is expected to grow 9-10% this fiscal, home care (~25% of sector revenue) should slow to 6-7% after price cuts. Personal care (~25% of sector revenue) will see continued traction growing at 7-8%, owing to revival in rural demand and steady urban demand.

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