Analysts see turnaround for FMCG sector in 2015

Sluggish volumes and soft demand has been the story of the fast moving consumer goodds (FMCG) sector so far in the financial year but could 2015 be different? Analysts are striking an optimistic note as they gear up for the third quarter earnings season; many feel the worst may be over for the FMCG sector.According to analyst estimates the sector chould see revenues rising between 11 - 13% in the third quarter. However this increase will largely be due to price hikes and fresh launches rather than a big surge in volumes. In fact at 5%, volume growth will remain almost similar to what we've seen in Q2. Companies have kept costs on a tight leash and this may lead to profits rising inline with revenues at about 10 - 13%.Suruchi Jain, equity research analyst at Morningstar Investment Advisor believes it takes some time for volume growth to start reflecting on ground and so it might actually be fourth quarter or it might start showing in the third quarter. The timing is a little hard to judge. Marico may be the poster boy of the FMCG earning season in the third quarter. The company announced price hikes on key brands and increased promotions which are expected to help it post a 20% growth in revenues.However FMCG giant Hindustan Unliver's top line is expected to grow by just 10% as volumes remain subdued. The quarter also saw plenty of headlines on the tobacco business. While the government dropped the idea to ban sale of lose cigarettes, ITC's cigarette volumes are still expected to fall 7% compared to last year thanks to the price hikes which the company undertook. Another interesting point to watch out will be the rural vesus urban growth story. While rural wage growth has witnessed a sharp decline in the September quarter, discretionary spending has started to pick up in urban centres. Analysts say the urban India FMCG market could therefore; start growing faster than rural in the second half of the year.“There is lot of pent up demand in urban consumption and I think urban growth should be pretty strong in the coming quarters. It will catch up with rural. Rural because minimum support prices were raised and MNREGA new employment generated in rural last year - all of those one time thing are going to go away, urban will catch up. I am expecting volume growth to happen more from the urban offtake,” says Jain.Whether growth comes from rural or urban India, analysts seem to agree that the worst of the down cycle for the FMCG sector is now behind it. With commodity prices cooling off and companies expected to pass on the benefits in the coming weeks, price cuts could be just the trigger the consumer is waiting for.