Revenue growth for FMCG companies to tamp down in April-June quarter

Some companies are yet to see pick-up in rural demand

Even as commodity prices have come off their peaks, fast-moving consumer goods (FMCG) companies are expected to witness lower revenue growth at a time when companies have resorted to price cuts to pass on the benefits to consumers in the April-June quarter.

Volume growth is expected to remain steady as rural demand continues to remain under pressure for some companies in the quarter. Pre-quarterly commentary from FMCG companies on rural areas remained mixed. However, they said that they witnessed steady demand in the quarter.

Dabur India said in its update that trends in both urban and rural India have shown signs of improvement.

“One of the key contributing factors to this positive development has been the reduction in inflation,” it said.

Godrej Consumer Products Limited (GCPL) also said in its update that in India, its overall consumer demand remained steady, as witnessed in the previous few quarters.

“Our organic business continued to deliver robust performance with double-digit volume growth,” the company said.

However, Marico said that demand trends in the sector remained stable during the quarter, although signs of improvement on a sequential basis were not visible. It also said that rural demand remained elusive.

“Moderating headline inflation, hike in minimum support price, easing liquidity pressures, and forecast of a near-normal monsoon continue to fuel hopes of a gradual recovery in rural demand in the course of the year,” Marico said in its update.

IIFL Securities, in its preview note on FMCG companies, has said it expects aggregate volume growth of 4 per cent year-on-year (YoY).

“Companies have passed on the benefits of lower commodity prices in certain categories, which will result in aggregate revenue growth moderating slightly from 11 per cent in the fourth quarter to 8.5 per cent in the first quarter of 2023-24,” the brokerage said.

Kotak Securities said in its note that rural demand remained soft in the quarter and said it expects the divergence between urban and rural growth to narrow due to a weak rural base.

“Within staples, we expect food categories demand to remain buoyant and to improve sequentially in the case of homecare and beauty and personal care categories. However, certain summer product categories such as juices, cooling hair oils, and ice creams were impacted by unseasonal rainfall and will likely report lower growth/declines during the quarter,” Nomura said in its preview note on the sector.

It also said that volume growth for most staples companies is expected to be in the low- to mid-single digits YoY.

On discretionary demand, Prabhudas Lilladher said it remained weak as customers held back purchases across categories.

“We expect margins to improve on-quarter/YoY with peaked out input cost inflation and high-cost inventory (largely exhausted),” the brokerage said.

IIFL Securities said in its note that it expects GCPL, United Spirits (prestige and above), and ITC to witness strong volume growth. However, it expects Varun Beverages and Marico to post a subdued performance in volumes, it said.

Prabhudas Lilladher said that companies have resorted to price cuts of detergents of 10-20 per cent in the quarter ended April.

“Overall demand remains healthy; however, some pockets are still witnessing slow demand. Britannia Industries has some uptick in demand for biscuits and adjacencies. Launches continue to gain traction and customer acceptance,” it said.