The March quarter of the 2022-23 financial year (Q4FY23) could see fast-moving consumer goods (FMCG) companies report strong volume growth after nearly three quarters, as raw material prices moderate and consumer demand begins to look up. Gross margins are also likely to improve in Q4, with some companies such as Marico and Godrej Consumer (GCPL) expecting “reasonable growth” in operating profit and margins for the period.
Data shared by retail intelligence platform Bizom for Q4 shows that overall sales growth for FMCG companies will be in the region of 14.1%, led largely by volume growth rather than price-led growth. Overall here refers to sales growth for urban plus rural areas.
The June and September quarters of FY23, to be sure, also saw overall sales growth of 14.2% and 12.3% for the FMCG companies, according to Bizom data, but this was mainly on the back of price-led growth. The December quarter, on the other hand, reported a decline of 3.7%, Bizom data shows.
“A strong increase in the number of kirana outlets by double digits has led to growth in FMCG sales in Q4,” says Akshay D’Souza, chief of growth and insights at Bizom. “With rising temperatures, cold beverages are entering peak season sales. Secondly, we do see sales of categories such as branded commodity products, packaged foods, confectionary and home care growing in strong double digits in Q4,” he said.
Companies such as Marico, GCPL and Dabur have all pointed to a gradual recovery in the FMCG sector, with the demand trajectory in Q4 across categories showing an improvement over previous quarters in FY23. “There are green shoots emerging in FMCG such as moderating inflation, improving consumer confidence and increase in government spending,” Dabur said on Thursday in its Q4 update.
“But the recovery falls short of a full one as rural markets have remained muted, though urban markets have returned to positive volume growth,” Dabur said.
Over a third of FMCG sales in India come from rural areas, with the rest coming from urban areas, say analysts tracking the market. But the good part is that the rural demand slowdown, according to brokerage Nomura, is “bottoming out”.
“The fourth quarter of FY23 could witness some recovery in rural market demand led by lower inflation and improving wage growth. We believe recovery in rural market demand will be prominently visible in the first quarter of FY24, post-harvest of rabi crops,” Nomura said in its report dated April 3.
Marico concurs with this view. In its quarterly update released this week, the company said that easing of broader commodity inflation augured well for consumption trends, especially in rural areas.
“While a more visible and sustained recovery in FMCG demand is anticipated in the coming quarters based on a variety of improving macro indicators, a healthy monsoon season will be critical for the same to materialise,” Marico said.
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GCPL said that consumer demand trends have been steady in Q4, with the performance of its India FMCG business expected to exceed expectations on the volume front.
“We expect to deliver double-digit volume and value growth. Our domestic branded FMCG business growth was very strong registering volume and value growth in teens. This is in line with our strategy of volume-driven category development. Overall, the growth in Q4 has been broad-based and led by double-digit volume and value growth in categories such as home care and personal care,” GCPL said.
