FMCG and dairy in India set to grow in 23 dairynews7x7

Fast moving consumer goods (FMCG) companies kickstart their new year with high hopes of robust growth despite rising recession fears and persisting Covid like situation globally.

The companies are optimistic about the urban and rural growth in 2023 and expect less price hikes, cooled off inflation and robust consumer demand.

Last year, the FMCG industry faced two major challenges — subdued profit margins and weak rural demand — which are expected to improve in this financial year, say industry experts.

Predicting the growth for this financial year, CRISIL, a research agency, said that the revenue of the FMCG sector will grow at around 7-9 per cent this financial year compared to 8-9 per cent in the previous year, which was driven by price hikes, owing to partial pass-on of rising input costs.

“Volume growth for the sector will remain subdued owing to rising inflation and sluggish rural demand which accounts for almost 40 per cent of overall FMCG demand,” said Pushan Sharma, director – research, CRISIL Market Intelligence and Analytics.

The sector is expected to grow at the same pace in FY24, largely driven by volumes and moderating inflation. Rise could be seen in rural demand amid steady urban demand which will aid volume driven growth, he added.

Last year, urban markets were growing steadily as post-pandemic, a lot of categories started coming back strongly which helped the urban markets to grow. The industry experts see robustness in urban demand to continue this year also.

“Urban demand would continue to grow at around 9-10 per cent in FY24, whereas rural demand is expected to grow at around 5-6 per cent for the industry,” Venkatesh Vijayaraghavan, chief executive officer, CavinKare, told Business Standard. CavinKare is a Chennai-based FMCG major company.

Parle Products is also optimistic about the industry growth and expects it to be better than the last calendar year as inflation has cooled off.

Godrej Consumer Products also said that it is witnessing growing demand in rural India with the agrarian economy looking up. “We expect gradual rural consumption recovery in 2023 driven by expected higher infrastructure spends, ” Sameer Shah, CFO at Godrej Consumer Products.

Dabur also expects the rural demand’s revival as in the previous year, the impact of inflationary pressures was more pronounced in the rural markets even as e-commerce and modern trade drove growth in rural markets, said Mohit Malhotra, CEO Dabur India.

“Urban demand growth will continue to be driven by emerging channels like modern trade and e-commerce,” said Malhotra.

“More than inflation, it was volatility.

We saw prices going up significantly last year. In fact, in certain cases, including edible oil, it almost doubled, wheat and sugar witnessed a significant rise in prices,” Mayank Shah, senior category head at Parle Products, said.

In the coming year, we expect the prices to remain stable as the recessionary trends continue globally due to which huge demand won’t be coming across the globe, which was a major factor for inflation, Shah said.

However, Vijayaraghavan is concerned about rural demand as the industry has not seen a good rebound. But he is hopeful that if the January to March demand turns out to be good, it will set up a trend for the year.

“From a rural perspective, we are in a wait and watch situation as we don’t see the demand bouncing back as expected,” said Vijayaraghavan.

On the other hand, Parle Products expects a robust rural demand in 2023, mainly due to the better realisation of the kharif crop.

“For the Q4, we are expecting around 10-12 per cent growth over last year,” Shah said.

As per CRISIL, next fiscal, higher minimum support prices for key rabi crops, anticipation of normal monsoon and a good harvest should aid rural growth and help gradual recovery in rural demand.

Easing of commodity inflation, higher crop realisations, ongoing government interventions and likely stimulus from the upcoming Union budget augurs well for the sector in the forthcoming calendar, Marico said in its quarterly updates.

Talking about price hikes trend that happened across the industry during the previous year, Vijayaraghavan said that in 2024, price hikes will also come down due to softening of escalation in raw materials cost and global flurries.

However, the dairy industry has been hit by inflation and expects the trend to continue.

“In 2022, the dairy industry witnessed inflationary pressures with a multifold rise in varied input costs. This inflation-led surge has been observed at both back-end and operational levels and is likely to continue to affect the sector. However, on account of better demand this year, we anticipate a robust growth over the last fiscal year,” said Manish Bandlish, managing director, Mother Dairy.

Other companies including Parag milks also expect price hikes throughout the country as seen in Delhi-NCR region in recent times.

As per Devendra Shah, chairman of Parag Milks, the dairy industry is expected to grow at around 10-12 per cent.

“Parag Milks’ is expected to see around 15-18 per cent year-on-year volume growth and around 20 per cent value growth,” Devendra Shah said.

The rising threat

One of the worries that loom over the FMCG industry is the rising number of Covid cases.

Industry experts believe that Covid might disrupt the supply chain globally and the Indian FMCG market might face the problem because of its dependence for the raw/packing materials outside the country.

However, CavinKare and Godrej Consumer Products feels that the industry is in a much better position owing to past covid waves experiences.

“With the emergence of new variants and rising Covid cases, I will say the industry is better prepared to tackle any situation and doesn’t expect any major supply chain disruption,” Sameer Shaha said.

Most of the companies have started piling up the inventories ahead of time to avoid any discontinuities.

However, some companies, including Parle, Parag milks and Mother Dairy do not anticipate any significant impact going ahead.

Consumer players like CavinKare say that the industry can manage a quarter or two but beyond that, it would be cost effective to manage the situation which would also be subject to the revamping of the inventories.

Hopes for the future

  • FMCG sector to grow at around 7-9 % in FY24
  • Strong Urban growth in FY24 but sluggish rural growth remains a major concern for FMCG players.
  • High MSP, normal monsoon and good harvest to push rural demand.
  • FMCG sector resilient to any Covid like situations atleast for two quarters, less impact of global recessionary trends.
  • Dairy sector might see further price hikes across India

Source : Business Standard : Jan, 04,2023

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