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FMCG revenues to grow 7-9% this fiscal; volume growth at just 1-2%: Report

New Delhi: Revenue of the fast-moving consumer goods (FMCG) sector will grow 7-9 per cent this fiscal driven by price hikes owing to surging input costs, said CRISIL Ratings in a recent media release. Last fiscal, the FMCG sector witnessed an 8.5 per cent increase in revenues.

In terms of volume, this fiscal FMCG industry is expected to see 1-2 per cent growth compared with 2.5 per cent last fiscal.

Anuj Sethi, Senior Director, CRISIL Ratings said, “Similar to fiscal 2021, volume growth for the sector will remain subdued owing to sluggish rural demand (~40% of overall FMCG demand) with inflation-led price hikes of 7-8% over the past 12 months.”

Urban demand is less impacted by the inflationary pressures and will grow faster, led by increased direct-to-consumer (D2C) and sales through e-commerce channels,” said Sethi highlighting that in both urban and rural areas, consumer preference is shifting to smaller pack sizes, which too is weighing on volume growth.

As per CRISIL, the operating margin will see a 100-150 basis points moderation to 18-19 per cent this fiscal on higher input costs of primarily wheat, milk, maize, rice, and crude derivatives and a rise in selling and marketing expenses. However, in the second half of the current fiscal, softening in the price of some raw materials, such as edible oil and sugar, will support the profitability levels of FMCG players.

For the next fiscal, the press release highlighted that the sector will see an almost similar pace of growth with operating margins projected to improve by 50-70 bps owing to better volume-driven growth and coverage of costs, almost reaching pre-pandemic levels of 20 per cent.

Geography-wise, rural demand is expected to improve in the next fiscal with inflation beginning to moderate. On the other hand, urban demand will continue to remain steady.

Giving a category-wise analysis, Aditya Jhaver, Director, CRISIL Ratings said that the food and beverages segment will grow 8-10 per cent this fiscal, while the personal care and home care segments will grow 6-8 per cent, with consumers being discrete and also resorting to downtrading, owing to higher prices.

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