Economy

FMCG sector growth to double to 10-12 per cent this fiscal: CRISIL Ratings

Meenakshi Verma Ambwani New Delhi | Updated on July 27, 2021

Latest report sees recovery in urban demand but moderation in rural growth

 

The fast-moving consumer goods (FMCG) sector’s revenue growth is expected to double in this fiscal compared to last fiscal, driven by factors such as recovery in urban demand and discretionary segments, along with the price hikes implemented to offset impact of raw material price increase.

According to the latest report by CRISIL Ratings, the FMCG sector is expected to clock a revenue growth of 10-12 per cent in this fiscal. It added that this will be the highest growth rate in the past three fiscals but flagged concerns about moderation in rural growth due to the widespread impact of the Covid-19 pandemic during the second wave.

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Last fiscal, strong rural demand had helped the FMCG sector to tide over slowdown in urban demand.

According to Anuj Sethi, Senior Director, CRISIL Ratings, “Price hikes of 4-5 per cent effected by the players across product categories over the past six months to pass on inflation in raw materials, together with volume growth of 5- 6 per cent and a revival in demand for discretionary products, will support revenue growth of 10-12 per cent this fiscal. Widespread Covid-19 afflictions in the hinterland during the second wave will result in moderation in rural growth this fiscal. However, recovery in urban demand for FMCG products will offset this and outpace rural revenue growth.”

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The operating margin of FMCG companies is expected to be restored to 19-20 per cent levels with a moderation of 80-100 basis points (bps) this fiscal due to increase in advertising expense and rise in raw material prices, he added.

Credit outlook remains ‘stable’

The report estimated urban revenue growth to be in the 11-13 per cent range compared to rural growth of 8-10 per cent in FY22. Last fiscal, urban revenue growth was impacted severely due to limited mobility, lower discretionary spends by consumers and supply chain distribution due to the pandemic, especially in the April-June quarter. The CRISIL report stated that urban revenue growth will see improvement, backed by uptick in demand in discretionary categories and out-of-home channels in this fiscal.

“In the rural segment, however, lower allocation to MGNREGA in the Union Budget, slower sowing in current crop season, and widespread impact of the second wave of the pandemic will moderate rural growth for FMCG products. That said, healthy reservoir levels, higher minimum support prices and expected increase in non-agriculture rural employment will provide some respite to rural demand this fiscal,” it added.

Stating that rate of revenue growth will not be uniform across segments, the CRISIL report pegged growth in food and beverages and home-care segments at 8-10 per cent this fiscal. Meanwhile, the personal care segment, such as skin care, hair oils, and hair colours, is expected to grow faster at 11-13 per cent, driven by price increases and a low base of last fiscal.

The report added that analysis of 57 CRISIL-rated FMCG companies indicated that continuation of strong cash generation and healthy balance sheets, as well as sizeable cash surpluses, will ensure that credit outlook remains ‘stable’.

Published on July 27, 2021

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