Mumbai (Maharashtra) [India], July 28 (ANI): Revenue growth of fast-moving consumer goods (FMCG) sector will double from 5 to 6 per cent last fiscal to 10 to 12 per cent in the current one, Crisil Ratings has said.
It will be the highest in past three fiscals, driven by price hikes effected across product categories to offset the impact of raw material price increase and a raft of other favourable factors.
Operating margins, on the other hand, will be restored to the normal level of 19 to 20 per cent with a moderation of 80 to 100 basis points (bps) this fiscal due to increase in advertising expense and rise in raw material prices.
Interestingly, said Crisil, operating margin had improved by 100 bps last fiscal despite lower revenue growth due to reduction in advertising and promotional expenses.
A continuation of strong cash generation and healthy balance sheets as well as sizeable cash surpluses will ensure credit outlook remains stable. An analysis of 57 Crisil-rated FMCG companies which represent close to one-third of the sector revenue of Rs 4.2 lakh crore last fiscal, indicates as much.
Anuj Sethi, Senior Director of Crisil Ratings said price hikes of 4 to 5 per cent effected by the players across product categories over past six months to pass on inflation in raw materials, together with volume growth of 5 to 6 per cent and a revival in demand for discretionary products, will support revenue growth of 10 to 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,” he said.
The urban segment, which accounts for over half of the sector revenue, will see an improvement riding on growth in discretionary categories on a low base of last fiscal.
Last fiscal, urban revenue growth was impacted disproportionately due to limited mobility and supply chain disruptions caused by the pandemic, especially in the April to June quarter, as well as lower discretionary spending by consumers.
A reduction in Covid-19 infections across the country and increasing pace of vaccinations will drive recovery in discretionary and out-of-home consumption categories in the near term.
In the rural segment, however, lower allocation to MNREGA in the Union Budget, slower sowing in current crop season, and widespread impact of the second wave of pandemic will moderate rural growth for FMCG products.
Rural demand had saved the day for the sector last fiscal supported by two consecutive years of good monsoon, better farm output and a higher proportion of essential products consumed. Healthy reservoir levels, higher minimum support prices and expected increase in non-agriculture rural employment will provide some respite to rural demand this fiscal.
The overall recovery in demand for the sector was already visible in second half of last fiscal post easing of lockdowns with 15 large listed FMCG companies posting revenue growth of 10 per cent in the second half (on-year) as against a revenue de-growth of 1 per cent in the first half. (ANI)
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