New Delhi: The Indian FMCG sector witnessed improvement in margins and slow growth in the December 2022 quarter but the rural markets continued to drag as retail inflation stayed at elevated levels, according to industry players.
Godrej Consumer Products Ltd (GCPL) and Marico reported that although there is softness in demand, there has been an improvement partly due to the lingering effects of festive sales, while urban and premium categories maintained a steady pace during the October-December period.
Godrej Consumer Products witnessed a “demand softness” in the domestic market and a slowdown post the festive season.
“During the quarter, the Indian FMCG sector witnessed slow growth driven by poor rural consumption and a slowdown post the festive season,” said the Godrej Group FMCG arm in its quarterly updates for Q3 FY23.
Despite this, GCPL expects “double-digit sales growth backed by low single-digit volume growth”.
“The quality of our profits should see meaningful improvement, led by Gross Margin recovery and continued marketing investments translating to high single-digit EBITDA growth,” it said.
Marico said that during the quarter, the FMCG sector witnessed some improvement in demand, which was more visible in specific categories buoyed by the festive fervour and oncoming winter season.
“Urban and premium categories maintained their steady pace of growth. However, recovery in rural demand was not as discernible as retail inflation stayed at elevated levels,” the company said.
Marico’s India business marked a slight improvement over the preceding quarter to post a mid-single-digit volume growth.
“As we witnessed some semblance of stability in key input prices and consumer pricing across key franchises, gross and operating margins are expected to improve both on a sequential and year-on-year basis. In view of the lower revenue growth, we expect modest growth in operating profit,” said Marico.
Nuvama Wealth Management in its latest report also confirmed that rural continued to be under stress.
“Rural demand did not improve at all in Q3. General inflation and rainfall deficit in populous states, such as Uttar Pradesh, Bihar, Bengal and Jharkhand, remain the key challenges, which have affected rural disposable income,” said Nuvama Wealth Management report (earlier known as Edelweiss Securities).
However, it also added margins for most companies under our coverage would improve sequentially but are likely to face pressure on a year-on-year basis.
“Within consumer staples, food is expected to outperform personal care. Biscuits and noodles are expected to see robust momentum due to the downtrading from street food. The HI (Household Insecticide) segment would see recovery after many quarters,” it said.
Motilal Oswal Financial Services Ltd (MOFSL) also said that “rural continues to be a drag” for the FMCG companies for the December 2022 quarter.
“With no clear signs of recovery in the rural demand, MOFSL expects sales in Staples to be driven by price increases and some premiumisation,” it added.
It further said that prices of most commodities have not declined at the expected rate, with the exception of palm oil, which benefits soaps and food players.
The FMCG industry has faced a double-digit price hike in 2022, and the latest report by data analytics firm NielsenIQ said the FMCG industry witnessed an overall volume decline of 0.9 per cent in the September quarter in comparison to the preceding three months.
This was the fourth consecutive quarter with negative volume growth for the industry and mainly attributed to price growth.
–PTI
