Revenue of FMCG companies to grow 7-9% in FY24: CRISIL Ratings

After being negative for six consecutive quarters, demand from the rural segment began to recover in the last quarter of fiscal 2023.

Revenue of companies in the fast-moving consumer goods space is expected to grow 7 to 9 percent this fiscal, led by higher volumes and a gradual recovery in rural demand, according to CRISIL Ratings.

This growth rate would be a little slower than the 8 to 9 percent seen in the last two fiscals.

Operating margins are expected to improve by 50-100 bps to pre-pandemic 20-21 percent because of falling raw-material costs, which would help offset the higher selling and marketing spend.

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Anuj Sethi, Senior Director, CRISIL Ratings, commented, “After subdued volume growth in the past two fiscals (1- 3 percent), the sector is likely to record a 4-6 percent volume expansion this fiscal, supported by gradual recovery in rural demand (35-40 percent of overall demand), and steady urban demand (60-65 percent of overall demand).”

Sethi added that “any adverse impact of El Niño conditions on rainfall pattern this monsoon season will have a bearing on rural demand and remains monitorable”.

After being negative for six consecutive quarters, demand from the rural segment began to recover in the last quarter of fiscal 2023. This was thanks to growing rural income in the last two quarters, along with falling rural inflation levels. This 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 urban segment, which grew in double-digits the past two fiscals, will continue to support overall growth this fiscal owing to increasing disposable incomes, continuing rise of e-commerce, growth of contact-based services, and progress on premiumisation in the home care and personal care segments,” stated the press release from the ratings agency, on the report.

“On their part, the players have undertaken price cuts in key categories such as edible oil and soaps and detergents to stimulate demand as prices of key inputs such as crude oil, linear alkylbenzene and soda ash have softened,” it added.

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Revenue growth would be different across product segments, pointed out Aditya Jhaver, Director, CRISIL Ratings. “While the food and beverages (~50 percent of the FMCG sector revenue) is expected to grow 9-10 percent this fiscal, home care (~25 percent of sector revenue) should slow to 6-7 percent after price cuts. Personal care (~25 percent of sector revenue) will see continued traction growing at 7-8 percent, owing to revival in rural demand and steady urban demand,” he stated.