The virtuous cycle of growth in the fast-moving consumer goods (FMCG) market will be back by the second half of FY25, led by a recovery in rural areas, the post-results commentary of some of the top companies indicate. The optimism, though, has a hint of caution: The first quarter of the ongoing fiscal could be weak as the election season drags on and the heatwave keeps people indoors, hurting out-of-home consumption.
“We would be aiming for double-digit volume growth post-election and post-monsoon. Barring the entry of the year (Q1FY25), which would be sluggish, we expect solid growth in the second half of the year,” Varun Berry, executive vice-chairman and MD of Britannia, said in an investor call this week.
On Wednesday, Pidilite Industries, which makes popular brands Fevicol and Fevikwik, indicated that double-digit volume growth would come after some near-term pain in the sector.
“There could be some demand concerns in the first quarter of FY25. What we have seen in the past is that long-duration elections have led to temporary disruption in availability of labour and logistics. The extreme heat conditions in some parts of the country could also hamper demand,” Bharat Puri, MD, Pidilite, said.
Suresh Narayanan, chairman and MD, Nestle India, said that he saw the June quarter as being just another “normal” period for FMCG. “While there were expectations of greater consumption during the ongoing general elections due to the hot weather conditions, that hasn’t been the case. It is still a market that is being impacted by inflation,” he said.
On Tuesday, market researcher NielsenIQ had indicated that rural growth had outpaced urban growth in the January-March period for the first time in five quarters, bringing much-needed relief to the sector. While rural growth for the March quarter stood at 7.6%, urban growth was 5.7%, it said. The trend was expected to grow, the research agency added, as consumption was gradually building up across categories.
Dabur, which gets around 40% of its sales from rural areas, has indicated that its rural business has been tracking ahead of urban for the last two quarters. While rural demand for Dabur grew 200 basis points ahead of urban in the December 2023 quarter, it expanded by 400 bps in the March quarter.
“Our rural coverage during the year (FY24) expanded by 22,000 villages to 122,000 villages. Dabur’s rural distribution has also given it a distinct advantage, which has helped the company in driving rural growth,” Mohit Malhotra, chief executive officer (CEO), Dabur India, said.
Rohit Jawa, CEO and MD, Hindustan Unilever (HUL), said in an earnings’ call last month that he saw a gradual recovery for the industry. “The worst has passed us as far as FMCG is concerned. From here on, we do see gradual recovery in rural consumption and the industry as a whole. Urban consumption has been resilient, especially, at the premium end,” Jawa said.
Companies are also gearing up for spurt in inflation in FY25, both in crude-linked derivatives as well as agri commodities such as copra, wheat and sugar.
Saugata Gupta, MD & CEO, Marico, said the June quarter of FY25 had begun with a 6% increase in the price of Parachute because of input cost pressures in copra.
Berry said he expected a 3% price-led growth in FY25 to mitigate input cost pressures in wheat and sugar.