Fast-moving consumer goods (FMCG) companies may report low-single-digit revenue growth in the December quarter of FY25 owing to sluggish urban demand and persistently high input costs, analysts as well as companies said.
“We expect volume growth deceleration across the board, given the slowing urban demand and a gradual rural recovery,” analysts at Kotak Institutional Equities wrote. “Volume growth is likely to be in low-to-mid single digit for most companies,” analysts at Nuvama Institutional Equities said.
In its quarterly update released on Friday, Dabur India said it expects a “flattish operating profit growth in Q3”. Marico said it expects a “higher-than-anticipated gross margin contraction on a year-on-year basis” and a “modest operating profit growth” in Q3.
FMCG companies have been battling slow demand in urban areas due to inflationary pressures, low wage growth and higher housing rental costs.
“We believe that there should still be some bit of a urban slowdown which will continue to weigh down on the volume growth while the rural demand uptick is largely maintained,” said Ajay Thakur, research analyst at Anand Rathi Institutional Equities.
The situation has been exacerbated by a steep rise in prices of key raw materials. For instance, tea and palm oil have seen their prices rise by up to 30% year-on-year in Q3.
To offset this and ease pressure on the margins, companies have undertaken low-to-mid single-digit price hikes.
Analysts suggest these hikes may have negatively impacted volumes in Q3.
However, most analysts suggest that more price hikes are expected in Q4FY25 as companies will look to maintain margins amid low demand.
According to Nuvama, Hindustan Unilever is expected to report 1-2% y-o-y volume growth, Britannia may post 4% y-o-y volume growth, and Marico may see 5% growth. Godrej Consumer Products and Bajaj Consumer Care are likely to see flat growth in volumes.
In the staples space, analysts expect Bikaji Foods, Marico and Colgate to lead volume growth. In the discretionary segment, United Spirits, P&A, and United Breweries may lead the way driven by the new liquor Andhra policy and a strong marriage season.
The support from rural consumption will continue to help the sector but the slowdown in urban demand is likely to persist at least for another two quarters.
According to Nuvama, it “shall continue for two–three more quarters”. Marico CEO Saugata Gupta believes it would take at least six months to revive.
Thakur said the recovery is likely to start showing up in the first quarter of next financial year.
“In Q3, we haven’t seen much of an urban demand recovery. I am hopeful that from Q1 onwards we should start seeing some revival,” he said.
