FMCG revenue growth seen doubling to 10-12% this fiscal: Crisil

Revenue growth of the fast-moving consumer goods (FMCG) sector will double from 5-6% last fiscal to 10-12% in the current year – the highest in the past three fiscals – driven by price hikes across product categories, a new report by Crisil Ratings said Tuesday.
Companies have taken up pricing anywhere between 5-10% in the last quarter, to offset the impact of soaring raw material prices. Operating margins, on the other hand, will be restored to the normal level of 19-20% on account of higher spends on advertising. The continuation of strong cash generation and healthy balance sheets, along with sizeable cash surpluses, will ensure credit outlook remains stable, the report added. An analysis of 57 CRISIL-rated FMCG companies, which represent close to one third of the sector's revenue of Rs 4.2 lakh crore, indicates as much, the report said.

Anuj Sethi, senior director at Crisil Ratings said, “Price hikes of 4-5% by players across product categories over the past six months to pass on inflation in raw materials, together with volume growth of 5-6% and a revival in demand for discretionary products, will support the revenue growth.”


Sethi said widespread Covid-19 in the hinterland during the second wave will result in moderation in rural growth, adding that recovery in urban demand will offset this and outpace rural revenue growth.The urban segment, which accounts for over half of the sector revenue, will see an improvement riding on growth in discretionary categories on a low base of last fiscal, and phased resumption of offices, and educational institutions.

Last fiscal, urban revenue growth was impacted disproportionately due to limited mobility and supply chain disruptions caused by the pandemic, especially in the April-June quarter, as well as lower discretionary spending by consumers.

A reduction in Covid-19 infections across the country and increasing pace of vaccinations will drive recovery in discretionary and out-of-home consumption categories in the near term.In the rural segment, however, lower allocation to MNREGA in the union budget, slower sowing in current crop season, and widespread impact of the second wave of the pandemic will moderate rural growth, the report further said.


Rural demand had saved the day for the sector last year, supported by two consecutive years of good monsoon, better farm output, and a higher proportion of essential products consumed.