FILE PHOTO: People shop inside a grocery store at a residential area in Mumbai, India June 13, 2016.
Credit: Reuters File Photo
Indian consumer goods companies are set to post their second quarter results kickstarting with Nestle on October 17, with others following suit by the end of October. Analysts unanimously believe that fast moving consumer goods (FMCG) players will most likely post a volume-led growth this quarter.
“Volume-led is more important because I think in rural market, price sensitivity is there, and with the persisting challenges of real wages and unemployment and other such factors, it will be a tall order to expect price rise or price-led growth from especially the rural and semi urban market,” said Ankur Bisen, Senior Partner & Head - Consumer, Food & Retail, Technopak Advisors.
However, most analysts expect a muted or at best a slightly better growth this quarter. Sectoral experts have also highlighted that while rural demand has been recovering gradually supported by normal monsoon, that might not necessarily reflect in the second quarter numbers of majors like Hindustan Unilever, Dabur, P&G and others.
“While we are seeing rural recovery, it might not get reflected in this quarter, but we can see it from the second half, which would be from Q3 onwards. So, on an aggregate basis, we could expect a 6-7% percent kind of a revenue growth for the second quarter of FY25,” said Preeyam Tolia, senior analyst, Axis Securities.
Additionally, analysts have pointed out premium, higher-priced products may continue to do better than convenience goods and daily essentials, even as the urban market continues to be cautious with spending.
However, the rural recovery will lead to a hiring uptick, highlighted experts.
“Increased hiring across a range of segments is anticipated as a result of the ongoing market shifts and the ongoing recovery in rural demand. Even though urban demand is growing more slowly, the sector's hiring outlook is still positive,” said Maya Nair, Executive Director of staffing firm Gi Group.
Margins have always remained a pressure point for consumer goods companies, especially with rising competition from the smaller, regional brands and this quarter is not expected to be different in any meaningful way.
“Since volumes are expected to be the growth factor, therefore, the margin improvement plans, especially of the multi-national companies have taken a serious hit,” said Harish Bijoor, business and brand strategy expert.
To enhance profitability and widen their portfolio, several FMCG companies have been relying on the rising trend of premiumisation, from the likes of Tata Consumer to even Nestle India.
“I will also be looking at the premiumisation and the value addition that most majors have not talked about for margin enhancement and to what extent that has played out,” added Bisen.
Banking on optimistic festive and wedding seasons, sectoral experts see a good turn around for the second half of the year. Additionally, on the back of a sustained and growing demand, price increases seem unlikely for FMCG companies.
It may be recalled that the first quarter was marked by a mid-to-high single digit revenue growth, driven by a good summer season and a recovery in rural markets
Amidst the expectations of a muted quarter for the FMCG majors, Marico and Adani Wilmar are expecting a double-digit consolidated revenue growth, in the second half of the year.