Fast moving consumer goods (FMCG) companies have been grappling with sluggish growth for some time now. Demand pressures have been more evident in the mass market segments, while premium products have been recording good sales traction. Also, rural demand has lagged urban sales. With the Indian economy clocking a much better-than-expected growth in recent quarters, one wonders whether things are beginning to look up for FMCG companies, too.
Recent updates from several companies as well as analysts signal that while the outlook may be looking better, things are yet to turn for the better for most.
"Operating conditions in India continue to remain subdued," said homegrown Godrej Consumer Products (GCPL).
The company has a presence across home care, personal care and household insecticides segments. GCPL has seen broad-based growth across home and personal care segments, with underlying volumes (number of units sold) in the India business in high-single digits. But, it said household insecticides demand had been subdued due to extended winter in north and east.
Marico, the maker of Parachute hair oil, pointed that FMCG demand sentiment had stayed consistent compared with preceding quarters. But, urban and rural consumption trends have now begun to converge.
Importantly, the company has seen a slight uptick in volume growth sequentially in the January-March quarter, indicating that things are looking up quarter-on-quarter.
But again, growth rates have been mixed across segments. For instance, volume growth for Parachute cooking oil has been in low-single digits, while Saffola cooking oils saw volume grow in mid-single digits. Value-added hair oils, on the other hand, had a weak quarter, declining on a high base amid "persistent sluggishness in the bottom of the pyramid segment", Marico said.
Dabur, which competes with Marico in the hair oils segment, also expects mid-single digit growth in the just ended fourth quarter. It too pointed to urban and rural growth gap closing.
"Demand trends remained sluggish during the quarter. Rural growth picked up fuelled by price roll backs in staples which led to the gap between rural and urban narrowing," the company said.
Like other FMCG firms, Dabur too is seeing mixed trends. The home and personal care segment is expected to grow in high-single digits, but healthcare, and foods and beverages segments are expected to see low single-digit growth.
As such, most FMCG companies had a tepid 2023-24, with volume growth slow and price cuts taken by companies hurting value growth. Companies also stepped up advertising and promotional spends as competitive intensity rose. Poor monsoon rains, in particular, hurt rural demand.
"Hope of any demand recovery has seen consistent extension, which is now being reflected in weaker earnings delivery. From the Q4 perspective, we see muted 4 per cent year-on-year growth in revenue and 5 per cent growth in EBITDA (earnings before interest, taxes, depreciation and amortization) for our 10-stock FMCG coverage," said Nitin Gupta, senior research analyst at Emkay Global Financial Services.
Naveen Trivedi, research analyst at Motilal Oswal Financial Services, also expects FMCG companies that the broking firm covers to report low to mid-single digit volume in the March quarter. But, things are likely to get better.
"FY24 was an interim phase when price cuts/consumer offer impacted revenue growth, while volume recovery lagged. We believe volume growth has bottomed out and expect a better print in FY25," said Trivedi.
He noted that companies have been focusing on boosting their core portfolios through initiatives like distribution expansion, product relaunches and stepping up marketing spends.
Trivedi agreed that while urban markets have continued to see improvement, rural markets have also started to recover.
With the overall macro economy expected to remain strong this year, and importantly, monsoon rain expected to improve as El Nino conditions weaken, companies are hopeful on the road ahead.
"While the past year was challenging in terms of consumer demand, we expect improvement in consumption going forward as macro-economic indicators continue to be robust," said Dabur.
Marico is also expecting a gradual uptick in growth of its core categories. The company has taken various initiatives to improve profitability of its general trade channel partners, while also investing in expanding its direct reach across urban and rural outlets over the next two years.
"The residing El Nino effect from May 2024 has created optimism of a better agri season ahead," noted Emkay's Gupta.
But, he also warned that the near-term outlook is not too positive, given the recent surge in select raw material prices.
Crude oil prices, for instance, have hit a six-month high, with brent crude topping $91 a barrel in recent days, amid geopolitical tensions in West Asia. There are worries whether oil prices scale $100 a barrel again, if tensions between Israel and Iran escalate. That could have a bearing on several crude-linked raw materials, which are a key input in number of FMCG products.
