Demand for consumer goods likely to pick up gradually; rural markets also recovering on hopes of good monsoon

A pro-consumer Union budget can also aid rural recovery, say analysts

Supermarket Representational image | Reuters

The one thing that has been worrying fast-moving consumer goods companies over the last few quarters is the sluggish rural demand. A below normal monsoon rain in 2023, in turn depleting water levels in reservoirs and affecting agriculture activity all had an adverse impact. High food inflation also hurt. As monsoon picks up after an intense heat wave this year, are things looking up for consumer goods companies?

Commentary from some companies indicates a modest recovery in the April-June quarter, although the mood is upbeat and expectation is that things will only pickup pace from here on.

"The quarter saw sequential improvement in demand trends with rural growth picking up. With forecast of a normal monsoon and continued focus by the government on macro-economic growth, we expect the improvement to accelerate in the coming months," Dabur said.

Parachute hair oil maker Marico echoed similar sentiments stating that demand trends have continued to exhibit gradual improvement.

"During the (April-June) quarter, the domestic business posted a modest uptick in underlying volume growth on a sequential basis," the company said.

Volume growth essentially indicates the number of units or packs sold. Parachute hair oil saw low-single digit volume growth in the first quarter of the financial year, but Marico expects it to pick up through the rest of the year. As as been the trend over the last few quarters across the industry, premium products continue to grow faster, even at Marico.

"Value added hair oils had a soft start to the year due to competitive headwinds persisting in the bottom of the pyramid segment, while the mid and premium segments fared relatively better," it said.

Marico's Saffola oils portfolio saw mid-single digit volume growth, amid marked stability in input costs and consumer pricing.

Dabur expects home and personal care as well as healthcare segment to grow in high single digits.

"Travel and out of home consumption got impacted due to scorching summers, which had an impact on our beverage segment although the food (culinary) category showed good momentum," it said.

Overall, Dabur expects the consolidated revenue to grow in mid to high single digits in the first quarter of the current financial year. Marico is also expecting its consolidated revenue to grow in high single digits.

According to analysts tracking the sector, a better monsoon this year should aid rural recovery, while there is also an expectation of a pro-consumer Union budget.

"Rural demand recovery green shoots are in place and expected to see moderate improvement in the first quarter. Full effects of tailwinds are to be felt in the second half of financial year 2025, when growth is likely to see recovery," said Nitin Gupta, research analyst at Emkay Global Financial Services.

According to Gupta, a harsh summer is likely to have benefited summer-centric portfolios, while select on-the-go consumption food categories are likely to take a beating. Lack of cooling infrastructure may limit growth for select companies, he added.

Following a 5-7 per cent growth in financial year 2024, credit ratings agency CRISIL expects the FMCG sector to see a 7-9 per cent growth in the current financial year, on the back of higher volume growth, supported by expected revival in rural demand and steady urban demand.

"We expect volume growth of 6-7 per cent in fiscal 2025 from the rural consumers (40 per cent of overall revenue), supported by expectation of better monsoon benefiting agricultural production, and hike in minimum support price supporting farm incomes," said Aditya Jhaver, director, CRISIL Ratings.

He feels higher government spending on rural infrastructure, primarily through affordable housing scheme, will aid higher savings in rural India, supporting their ability to spend more. Volume growth from urban consumers is expected to remain steady at 7-8 per cent through the financial year, aided by rising disposable incomes and continued focus on premium offerings by companies, he added.

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