Fast-moving consumer goods (FMCG) companies reported a muted performance in the fourth quarter of FY25 due to continued weakness in the urban market, according to a report by Axis Securities.
The report highlighted that sluggish demand, higher competitive pressure, and broader economic challenges weighed on the sector's growth during the quarter.It said "FMCG companies have reported muted performance due to weakness in the urban market, owing to increased competitive intensity and subdued demand environment".
The report also mentioned that the Urban markets, which contribute around 50-60 per cent of total FMCG sales, continued to struggle. Companies attributed the slowdown to several factors, including reduced discretionary spending, slow wage growth, high interest rates, and rising rentals and EMIs.
Additionally, growing competition from direct-to-consumer (D2C) brands and increased penetration of quick-commerce (Q-commerce) platforms also impacted demand from urban consumers.
On the other hand, the report added that the rural markets showed signs of steady recovery. This was supported by easing inflation, higher government spending, and an increase in minimum support prices (MSP) for key crops.
According to the report, rural demand has started to outpace urban demand and remains more resilient.
Despite the weakness in urban consumption, companies remain optimistic about a recovery in the coming quarters. Most managements expect a pick-up in volume growth within the next 1-2 quarters.
A more meaningful recovery is likely to be seen only in the second half of FY26, driven by factors such as lower inflation, anticipated interest rate cuts, a favourable monsoon forecast, and a good harvest and sowing season.
On the financial side, the report highlighted that topline growth remained muted across most staple FMCG companies, with low single-digit volume growth. Gross margins were under pressure due to rising prices of key raw materials like palm oil and other agricultural commodities.
As a result, companies saw subdued margin performance. With input costs remaining high and volume growth yet to pick up, EBITDA margin improvement is expected to stay limited in the near term, as firms take a cautious 'wait and watch' approach.