MUMBAI, India —A new report from Indian analytical firm Crisil said that revenue growth of the fast-moving consumer goods (FMCG) sector will double from 5 to 6 percent in the last fiscal year to 10 to 12 percent in the current one.
It will be the highest rise in the past three fiscals, driven by price hikes effected across product categories to offset the impact of the raw material price increase and a raft of other favorable factors.
“Operating margins, on the other hand, will be restored to the normal level of 19 to 20 percent with a moderation of 80 to 100 basis points (bps) this fiscal due to an increase in advertising expense and rise in raw material prices,” Crisil said in the report.
“The operating margin had improved by 100 basis points last fiscal despite lower revenue growth due to a reduction in advertising and promotional expenses.”
A continuation of strong cash generation and healthy balance sheets, as well as sizable cash surpluses, will ensure the credit outlook remains stable.
“Price hikes of 4 to 5 percent effected by players across product categories over the past six months to pass on inflation in raw materials, together with volume growth of 5 to 6 percent and a revival in demand for discretionary products, will support revenue growth of 10 to 12 percent this fiscal,” said Anuj Sethi, Senior Director of Crisil Ratings.
“Widespread Covid-19 afflictions in the hinterland during the second wave will result in a moderation in rural growth this fiscal. However, recovery in urban demand for Fast-moving consumer goods products will offset this and outpace rural revenue growth.”
The urban segment, which accounts for over half of the sector revenue, will see an improvement riding on growth in discretionary categories on a low base of last fiscal, the report said.
Last fiscal, urban revenue growth was impacted disproportionately due to limited mobility and supply chain disruptions caused by the pandemic, especially in the April to June quarter, as well as lower discretionary spending by consumers.
A reduction in Covid-19 infections across the country and increasing pace of vaccinations will drive recovery in discretionary and out-of-home consumption categories in the near term, as per the report.
“In the rural segment, lower allocation to Mahatma Gandhi National Rural Employment Guarantee Act in the [Indian] Union Budget, slower sowing in the current crop season, and widespread impact of the second wave of the pandemic will moderate rural growth for Fast-moving consumer goods products,” the report said.
“Rural demand had saved the day for the sector last fiscal supported by two consecutive years of good monsoon, better farm output, and a higher proportion of essential products consumed. Healthy reservoir levels, higher minimum support prices, and an expected increase in non-agriculture rural employment will provide some respite to rural demand this fiscal.”
The overall recovery in demand for the sector was already visible in the second half of last fiscal post easing of lockdowns with 15 large listed fast-moving consumer goods companies posting revenue growth of 10 percent in the second half (on-year) as against a revenue de-growth of 1 percent in the first half.
(With inputs from ANI)
Edited by Abinaya Vijayaraghavan and Praveen Pramod Tewari
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