New Delhi: Fast-moving consumer goods (FMCG) sector revenue growth will double from 5-6 per cent in the last fiscal to 10-12 per cent in the current one, said CRISIL Ratings. The report added that this will be the highest in three fiscals. The growth will be driven by price hikes across product categories that will offset the impact of raw material price increase, among other things.
“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,” said Anuj Sethi, Senior Director, CRISIL Ratings.
CRISIL stated that operating margin will return to the normal level of 19-20 per cent with a moderation of 80-100 bps due to advertising expenses and rise in raw material prices. Due to reduction in advertising and promotional expenses, operating margin had improved by 100 bps last fiscal.
URBAN VS RURAL
Driving the revenue growth will be the urban segment that accounts for more than half of the sector revenue. The urban improvement will be driven by growth in discretionary categories on a low base, phased resumption of offices, and educational institutions. Last fiscal urban revenue growth was impacted due to restricted mobility and supply chain disruptions, the report added. But a reduction in COVID-19 infections and increasing pace of vaccination will reverse that.
But growth will be moderate in the rural segment due to lower allocation to MNREGA, slower sowing in the current crop season, and widespread impact of the second wave. Last fiscal, rural demand had driven revenue buoyed by good monsoon, better farm output, and a higher proportion of essential products consumed, stated CRISIL.
OVERALL DEMAND
Revenue growth rate is unlikely to be uniform across product segments and firms, said the report. Food and beverages and home care segments will grow 8-10 per cent this fiscal. Personal care segment, which has the highest proportion of discretionary products, is expected to grow at 11-13 per cent.