Consumer sector to remain under pressure in the coming quarters : Analysts

The consumer sector is expected to face ongoing challenges in the coming quarters, with key segments such as Fast-Moving Consumer Goods (FMCG) and Quick Service Restaurants (QSR) under pressure.

The consumer sector is expected to face challenges in the coming quarters, with key segments such as fast-moving consumer goods (FMCG) and quick service restaurants (QSRs) under pressure. In Q2FY25, companies like Dabur and Marico were impacted by inventory corrections and rising input costs, respectively, signalling a difficult road ahead for the sector, analysts said.

Despite India’s strong economic growth, lower food inflation, and an anticipated boost in rural consumption in the second half of FY25, consumer companies are likely to continue facing headwinds in the near term owing to sluggish sales.

Dabur India reported a decline in revenue during Q2FY25, largely due to inventory corrections in the general trade channel and adverse weather conditions, such as heavy rains and floods, which affected consumer spending and out-of-home consumption, particularly in the beverage category.

The company expects consolidated revenue to decline by mid-single digits for the quarter. "Dabur continues to invest heavily in its brands, with advertising and promotion (A&P) spending growing faster than revenue. As a result, operating profit is anticipated to fall by mid-to-high teens year-on-year," research and brokerage firm Motilal Oswal said in a recent report.

Marico, while maintaining stable volume growth, struggled with rising input costs—particularly for copra and vegetable oils—along with geopolitical uncertainties that put pressure on its gross margins. Despite these challenges, Marico remains focussed on double-digit revenue growth, driven by price hikes both in domestic and international markets.

Motilal Oswal forecasts high single-digit revenue growth for Marico in Q2FY25, with stronger growth expected in the second half of the year fuelled by price increases and strong international performance.

Weak growth persists

The QSR sector has continued to face weak sales growth, with several brands reporting a 15-20 percent drop in average daily sales (ADS) compared to FY23. Heightened competition, rapid store expansions, and rising input costs have strained profitability, particularly in the dine-in segment, which has struggled to recover.

Seasonal factors such as the 'Shravan' and 'Shraadh' periods further dampened sales in July and September 2024. Despite a brief recovery in August, overall demand remained weak across metro and tier 2/3 markets, contributing to a slower Q2FY25 than the previous quarter.

The festive season is not expected to provide much relief for the QSR sector, with Motilal Oswal noting that “we do not anticipate a significant boost from the festive period for QSR.” Operating margins remain under pressure, and while there may be some improvements in ADS and same store sales growth (SSSG), strong recovery is unlikely in the short term.

Outliers persist 

Amid the challenges faced by other consumer companies, V-Mart Retail emerged as a bright spot in Q2FY25, reporting a 20 percent year-on-year revenue growth, at ₹6.6 billion. This performance was driven by strong SSSG and strategic store expansions, setting V-Mart apart from the struggles of the  broader sector. As the consumer sector continues to face pressure in the coming quarters, companies like V-Mart that focus on growth strategies and adaptability may be better positioned to navigate the challenging environment.