FMCG players’ revenue is expected to grow at 7-9 per cent in this fiscal compared to about 8.5 per cent in the last fiscal largely driven by price hikes amidst inflationary pressures, as per an analysis by CRISIL Ratings. However, the rating agency pointed out that volumes are likely to grow in the range of 1-2 per cent lower than 2.5 per cent per cent growth in the last fiscal.

The study analysed 76 FMCG companies, which account for 35 per cent of the ₹4.7 lakh crore annual revenue of the sector.

Higher minimum support prices for key crops and a good harvest is expected to aid rural growth and help gradual recovery in rural demand in the next fiscal. Besides, increased spending on rural infrastructure by the Government, resulting in improved rural income levels, would also support growth. On the other hand, urban demand will remain steady next fiscal. “Next fiscal, too, the sector should see almost a similar pace of growth, but driven by volumes. That’s because rural demand is expected to improve with inflation gradually beginning to moderate, even as urban demand will continue to remain steady,”it added.

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Operating margin will see a 100-150 basis points moderation to 18-19 per cent this fiscal on higher input costs and a rise in selling and marketing expenses, despite price hikes undertaken by FMCG players over the last 4-5 quarters. “However, softening in the price of some raw materials, such as edible oil and sugar, will support profitability levels in H2 FY23,” it added. The rating agency added that operating margins are expected to improve by 50-70bps, almost reaching pre-pandemic levels.

Anuj Sethi, Senior Director, CRISIL Ratings, “Similar to FY21, volume growth for the sector will remain subdued owing to sluggish rural demand (~40% of overall FMCG demand) with inflation-led price hikes of 7-8 per cent over the past 12 months. On the other hand, urban demand is less impacted by inflationary pressures and will grow faster, led by increased direct-to-consumer (D2C) and sales through e-commerce channels. That said, in both urban and rural areas, consumer preference is shifting to smaller pack sizes, which too is weighing on volume growth.”

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Talking about category growths, Aditya Jhaver, Director, CRISIL Ratings, “The food and beverages segment, which constitutes around half of the sector’s revenue, will grow 8-10% this fiscal, given their essential nature, and lower penetration in organized retail, compared to other segments. On the other hand, consumption of personal care and home care segments, which account for the balance half of the sector’s revenues, will grow 6-8%, with consumers being discrete and also resorting to downtrading, owing to higher prices.”

Credit profiles of FMCG players are seen stable supported by healthy cash accruals, strong balance sheets with continuing low dependency on debt, and sizable liquid surpluses, it added.  

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