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India's fast-moving consumer goods (FMCG) sector should see revenue rebound 100 to 200 basis points to 6-8 per cent in the next fiscal year 2025-26, compared with a more modest 5-6 per cent expected rise in the current financial year 2024-25, Crisil Rating said Wednesday in a report.
This projected revenue rise is attributable to an expected volume rise (4-6 per cent) due to a gradual recovery in urban and steady rural demand. Traditional FMCG companies will continue to target acquisitions of direct-to-consumer (D2C) brands, increase adoption of digital channels, and introduce more lower-price packs and products amidst rising competition to support volume growth, which has remained subdued over the past few fiscals. Another 2 per cent revenue uptick is expected to come from realisations as FMCG companies partly pass on the impact of inflation in key categories such as soaps, biscuits, coffee, hair oil and tea, Crisil said. The pricing actions will be driven by elevated prices of key inputs such as palm oil (a key input for all three segments - F&B, personal care and home care), coffee, copra and wheat. Operating profitability of FMCG companies is expected to stay flat but healthy at 20-21 per cent in fiscal 2025-26, after a 50-100 bps decline in fiscal 2024-25. "All said, credit profiles of FMCG companies are expected to remain stable," said the rating agency. Crisil Ratings conducted a study of 82 FMCG companies, accounting for a third of the sector's estimated revenue. The urban segment accounts for 60 per cent of revenue and rural markets the rest for the FMCGs. By category, food and beverages generate nearly half of the sector's revenue, and personal care and home care a quarter each. High food inflation, elevated interest rates and sluggish wage growth impacted urban consumption across segments in fiscal 2024-25, with personal care and certain F&B sections taking a bigger hit. Rural volume has recovered and outpaced urban in the past few quarters after another spell of adequate monsoon. Anuj Sethi, Senior Director, Crisil Ratings, "We expect a modest recovery in volume as moderating food inflation, easing interest rates and tax relief measures announced in the Union Budget for next fiscal encourage urban demand. Rural demand will grow steadily given continuing allocation to welfare schemes and a hike in minimum support prices." Apart from the macro factors, traditional FMCG companies have had to contend with rising competition. Regional and local companies have been gaining with consumers downtrading to lower-priced brands. Besides, the rising preference for digital channels has opened distribution avenues on a much larger scale for D2C companies. Aditya Jhaver, Director, Crisil Ratings, said, "These measures are gradually enabling traditional FMCG companies to withstand competitive intensity." (ANI)
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