FMCG Companies Will See Revenue Growth Of 7-9% This And Next Fiscal Year: Report

Due to weak rural demand and rising inflation, the fast-moving consumer goods (FMCG) sector is likely to have 7-9 percent revenue growth this fiscal year and next, compared to 8.5 percent in the previous fiscal, according to PTI, reporting Crisil.

Volume increase will be 1-2 percent, down from 2.5 percent last fiscal year, according to the report.

"Almost 40 percent of the ₹4.7 lakh crore sector comes from the hinterland markets, which have been hit by high inflation, low wages, and high job losses since the Covid pandemic,"  according to the report.

According to the report, the sluggish revenue growth might be due to various price increases implemented by corporations this year to offset the impact of rising input costs. It went on to say that the next fiscal year will likely see a similar rate of growth, with inflation expected to remain high. However, if prices fall, the situation may improve.

The agency's optimism is based on the fact that it expects rural demand to increase as inflation gradually moderates, while urban demand remains stable.

Operating margins would be reduced by 100-150 basis points to 18-19 percent this fiscal year due to higher input costs and an increase in marketing spending, according to the report.

 However, softening raw materials such as edible oils and sugar are likely to boost profitability in the second half of FY23.

However, according to the report, which is based on an analysis of 76 FMCG companies that account for 35% of the 4.7 lakh crore sector, expects operating margins to improve by 50-70 bps (basis points) next fiscal, due to improved volume-driven growth and cost coverage, almost reaching pre-pandemic levels of around 20%.

Higher minimum support prices for important crops are projected, with a robust harvest likely to help rural growth and a gradual recovery in rural demand in the next fiscal year, according to the report.