The FMCG industry expects moderate low- to mid-single-digit volume growth in the July-September quarter as weak macroeconomic conditions amid rising food prices and below-normal rainfall in some regions hamper the recovery in rural demand.
Companies such as Marico, Dabur and Godrej Consumer Products Ltd (GCPL) in their quarterly updates said that although there was an improvement in consumption in the second quarter, the recovery was gradual.
Also, the holiday season this year has shifted entirely to the third quarter, due to which festival-related withdrawals are slowing down and will be carried over to the next quarter, the companies said.
In terms of their gross profits, the companies said they expect to improve consistently, helped by slowing inflation and easing price growth. This also helped them opt for higher A&P (advertising and promotion) spend.
Updating its business performance for the September quarter, GCPL said, “In India, we witnessed weak macros and adverse weather conditions during the quarter.”
Godrej Group’s FMCG division faced a “difficult operating environment” and yet its organic business achieved “mid-single-digit volume growth”.
Marico, which owns brands such as Parachute, Saffola and Hair & Care, said demand trends in the second quarter of FY24 largely mirrored trends seen in the previous quarter.
“Incidents of rising food prices and below-normal distribution of rainfall in some regions appear to be hampering the expected recovery in rural demand,” the company said, adding, “in the context, domestic volumes grew in low single digits year-on-year base…”
It continued to witness “healthy trends” in sales, market share and penetration of key franchises. Newer portfolios, food and premium personal care stayed on course to meet full-year targets.
Dabur India said FMCG consumption showed year-on-year improvement, but the recovery was gradual.
“This quarter witnessed a mild summer and slightly deficient monsoon. The festive season is later than normal this year due to which the festival-related recall is delayed and will be carried over to the next quarter,” it added.
The company expects its consolidated revenue to post mid- to high-single-digit growth in Q2.
On rural demand, Nuvama Institutional Equities CEO Abnesh Roy said in Q1FY24, there are some green shoots. However, given the very low rainfall in August (at a 100-year low), rural demand is again weak.
“September was better in terms of rains with 13 per cent surplus, but it has not yet lifted rural spending sentiment given the shift in festival demand,” he said.
Rural sales contribute about one-third of FMCG sales through low-value packaging. However, it has been struggling for the past 6-7 quarters and showed improvement in the previous April-June quarter.
Roy also added that urban-focused companies such as Nestle, Tata Consumer Products Ltd, GCPL and Colgate Palmolive will have an edge.
Moreover, “most companies’ international business is likely to outpace their India operations,” he added.
On the performance of its international business, Dabur said it is “poised for a strong performance, with double-digit growth at constant currency, led by the Middle East, Egypt and Turkey.”
Similarly, Marico’s international business “delivered double-digit consistent currency growth” and GCPL’s business in Indonesia, its second-largest market after India, “continued to deliver improving performance, with double-digit volume and value growth.”
FMCG companies expect better performance in the next quarter and the second half of the year.
“Consumption trends, especially in rural areas, are expected to improve in the second half of the year due to retail inflation levels remaining within RBI’s target range, rising MSP, healthy sowing season, easing liquidity pressure and government spending,” Mariko said.
Dabur also expects a recovery in consumption in both urban and rural markets in India due to improving macro indicators, increase in government spending and positive consumer sentiment.
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