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Budget 2018
Jan 17, 2018 04:38 PM IST | Source: Moneycontrol.com

Budget 2018: FMCG to see volume-driven growth; margins to improve slightly

CRISIL Research expects operating margins to expand 20-50 bps during fiscal 2018 owing to input tax credit benefits and cost rationalisation measures taken by many FMCG companies. However, rising input prices of raw materials such as crude oil and milk will restrict further margin expansion.

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• The FMCG sector logged a healthy 8 percent revenue growth in the first half of fiscal 2017, but failed to sustain momentum thereafter following demonetisation of high-value notes. This restricted full-year growth to just 6 percent on-year.

•In the first half of fiscal 2018, sales grew ~4 percent as improved demand in the second quarter partly offset the sluggish growth in the preceding quarter, which was hit by destocking issues ahead of the implementation of GST. Post-implementation of the single-tax regime, lower tax rates on several products led to a softening of prices, aiding demand growth.

• In the second half of this fiscal, low base of the previous year is expected to lead to a 9-10 percent on-year revenue growth. Stabilised value chain and improving rural demand will also aid growth.

•Thus, for the full fiscal, CRISIL Research expects the sector to clock a revenue growth of 6-7 percent on-year.

•CRISIL Research expects operating margins to expand 20-50 bps during fiscal 2018 owing to input tax credit benefits and cost rationalisation measures taken by many FMCG companies. However, rising input prices of raw materials such as crude oil and milk will restrict further margin expansion.

Key budget expectations

• Any announcement by the government that leads to an improvement in rural income will trigger FMCG demand growth.

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India Union Budget 2018: What does Finance Minister Arun Jaitley have up his sleeve? Click here for live Budget 2018 news, views and analyses.
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