FMCG in India: Volume Growth Continues

Fast moving consumer goods (FMCG) companies appeared to have sustained their sales momentum in the quarter ended March 31, at a time when inflationary pressures were high. Companies that have declared their results till date for the quarter report double-digit top-line growth, from 13 per cent (Nestle) to 39 per cent (Procter & Gamble Hygiene and Healthcare). Barring Nestle and Marico, most other companies have seen bottom line growth between 15 and 35 per cent during the quarter, While the numbers are in line with market estimates, analysts were cautious owing to the general trend of consumers cutting back during inflationary times. We believe specially a Categories such as soups, high-end edible oils and noodles are showing signs of a slowdown. These are discretionary items which consumers tend to cut on when pressure on their wallets grows.

While headline inflation has been just below seven per cent, consumer price inflation, which measures product prices to the end-consumer, has been in the region of 7.5 per cent. Despite this, companies on an average saw volume growth in the region of nine to 15 per cent and price-led growth in the region of five to 10 per cent during the quarter. Some categories such as soaps & detergents, however, bucked the trend of volumes, seeing growth largely led by price.

We at Ergos remain optimistic about the FMCG sector. Consumer sentiment has been good and demand will continue to be robust. There was anticipation of a slowdown, but overall revenue growth has been good for  the respective companies. For the January-March period, the Rs 75,000-crore Indian FMCG industry saw 14 per cent growth, higher than the 10 per cent growth in the third quarter .This is definitely good news. But one has to be watchful on how the situation evolves in the coming quarters.

With the government dropping hints of a fuel price rise, say analysts, both headline and consumer price inflation are likely to shoot up in the coming quarters, putting pressure on companies to increase prices. Already, companies have seen pressure on their margins, owing to higher ad spends and lower price rises. Most companies, on an average, saw advertising spending in the region of 13-14 per cent, higher than the 10-11 per cent in the third quarter. As competitive intensity grows, you have to keep ad spends at a consistent level. Companies are expected to keep ad spends a little lower during the coming quarters.

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