Due to sluggish rural demand and higher inflation, the fast-moving consumer goods (FMCG) sector is expected to see a muted revenue growth of 7-9 percent this fiscal year and in the next, compared to 8.5 percent in the previous fiscal, PTI reported, citing Crisil.
Volume growth will be just about 1-2 percent, down from 2.5 percent last fiscal, it said.
“Almost 40 percent of the ₹4.7 lakh crore sector comes from the hinterland markets, which have been hit by high inflation, low wages, and high job losses since the Covid pandemic,” the report said.
According to the report, several price hikes that the companies have taken during the year to cushion the impact of surging input costs are to be blamed for the tepid revenue growth. It added that in the next fiscal too, the FMCG companies are likely to see almost similar pace of growth with the inflation expected to remain high. However, the situation might improve if prices moderate.
The agency's optimism comes as it sees rural demand improving with inflation gradually moderating while urban demand remains steady.
Operating margins will moderate 100-150 basis points to 18-19 percent this financial year with higher input costs and an increase in marketing expenses, it said.
Softening raw materials such as edible oils and sugar, however, are expected to support profitability levels in the second half of FY23.
However, the report, based on an analysis of 76 FMCG companies that account for 35 percent of the ₹4.7 lakh crore sector, expects operating margins to improve by 50-70 bps (basis points) next fiscal, considering better volume-driven growth and coverage of costs, almost reaching pre-pandemic levels of around 20 percent, said PTI.
Higher minimum support prices for key crops are expected with a good harvest likely to aid rural growth and help a gradual recovery in rural demand next fiscal, it added.
