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With rural demand continuing to lag behind urban demand trends, volume growth of FMCG companies are expected to be impacted in terms of earnings in the December quarter. While retail sector saw divergent demand trends across categories, at the same time quick-service restaurants sector faced uncertain demand environment despite the festival push during the third quarter in this fiscal, analysts noted.
According to a report released by Nuvama Institutional Equities, rural demand is expected to have remained challenging in Q3 FY24 potentially hurting volume growth of the FMCG sector.
In the report, Abneesh Roy, ED and Head of Research Committee, Nuvama Institutional Equities noted that “although moderating inflation in diesel and fertiliser costs augur well for the rural segment, we forecast volume growth for most players shall remain challenging in Q3FY24 and possibly even Q4FY24. Weaker-than-expected winter and festival demand, rainfall deficit and unseasonal rains hampered rural growth in Q3FY24 and overall FY24. This led to muted volume growth for most players in Q3FY24.”
- Also read: Leading FMCG companies look to ramp up direct rural reach
Rural demand
Weak demand in rural regions, increased aggression of smaller players and focus on alternative avenues for spending by consumers has led to softer growth for the FMCG sector during this fiscal.
FMCG players are however, optimistic that rural demand will pick up in the coming months. In an interaction last week, Mayank Shah, Vice-President, Parle Products told businessline said, “ We are expecting rural demand to pick up as there is a good amount of government spending that is expected to happen especially with elections on the horizon. Hopefully, things should improve going forward with expectation of a better rabi crop.”
An analyst report by Elara Capital noted that beauty and personal care segment is expected to witness higher growth in the December quarter. This is due to demand boost due to festival and wedding season and surge in November promotional sales by run by players.
Karan Taurani, Senior Vice-President, Elara Capital noted in the report that for the quick-service sector, demand environment remained under pressure in the third quarter. This was despite festival season and the Cricket World Cup. He outlined factors such as rising competition and weak consumer demand but added that moderation in inflationary pressures brought some respite for the QSR chains.
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