(PTI) The country's FMCG industry continued to face challenges of retail inflation and slowdown in rural areas in the second quarter but expects demand to improve in the second half of this fiscal.
Leading makers such as Marico, Godrej Consumer Products Ltd (GCPL) and Dabur in their quarterly updates said demand across categories in the industry continued to remain soft during the second quarter on account of continued impact on unprecedented inflation.
However, the companies expect that in the remaining two quarters of the fiscal, moderating inflation and the festive season should support consumption growth in the second half.
"With the moderation in inflationary pressures due to correction in commodity prices, and the monsoon largely being on track (apart for a few states), we expect consumption to improve in the second half of the year," GCPL said in its quarterly updates.
GCPL, which owns brands such as Good Knight, Hit, Cinthol and Protekt, expects a "mid-single-digit volume drop, with a low single-digit 3-year volume CAGR".
While Marico, the maker of Saffola and Parachute brand products, said its domestic business posted low single-digit volume growth with a 3-year CAGR in high single digits.
"In India, demand sentiment trended on similar lines as the preceding quarter during most of the quarter, with some signs of positivity in the last month. With retail inflation holding firm, downtrading in rural areas was still prevalent during the quarter," said Marico's quarterly updates.
However, urban and premium discretionary segments continued to fare better.
The company expects "consumption trends should improve in the second half of the fiscal given retail inflation is expected to cool off as a result of government interventions, moderating commodity inflation pressures and reasonably healthy spatial distribution of monsoons."
Moreover, higher crop realisations and the upcoming festive season should also provide a fillip to overall sentiment.
While Dabur said "geopolitical situations continued to impact the business with unprecedented inflation during the quarter. This led to weak demand trends across categories."
Urban markets, which were driven by modern trade and e-commerce saw double-digit growth, while rural markets witnessed some pressure in terms of liquidity, said Dabur in an update on the performance and demand trends witnessed during the quarter ended September.
"Going forward, moderating inflation and the festive season should support consumption growth in the second half of the fiscal," it said.
The FMCG makers would also get benefit from the softening of palm oil, in the global markets along with crude oil.
According to a report from research firm Edelweiss, demand trends in July-August remained weak and makers faced margin pressures due to raw material inflation.
"While many companies undertook price hikes, margin pressure continues to persist this quarter as well. We expect margin profiles to improve H2FY23 onwards as raw material (RM) pressures ease," the report said.