FMCG sales likely to have remained slow in December quarter; festive season fails to add much cheer

Over the last few quarters, fast-moving consumer goods (FMCG) companies have been grappling with slow sales, especially in rural markets. The latest commentary from various FMCG firms suggests no major pickup in the October-December quarter too, with the festive season failing to bring much good news.

"During the quarter, the FMCG sector exhibited similar demand trends on a sequential basis, with urban markets staying steady and rural offering little to cheer," said Parachute coconut oil maker Marico.

Overall, for the sector, during October-December, volume growth is likely to have been in single digits, similar to the September quarter, while pricing-led growth is seen tapering off due to the subdued demand environment.

"The quarter witnessed sequential improvement in demand trends although rural growth was still lagging urban growth. Early signs of revival in consumption are visible with improving trends in volumes. With pricing growth remaining subdued due to price increases in base year, growth is largely volume-led," Dabur India said.

While the food and beverages segment is expected to grow in high single digits, a delay in the onset of winter season means the healthcare segment is expected to grow only in low-to-mid single digits, it noted.

Godrej Consumer Products too pointed to the third quarter operating environment remaining similar to the second quarter, with underlying volume growth in mid-single digit.

Adani Wilmar, the maker of Fortune-brand of edible oils, said the company benefited from the festive and wedding season and recorded the best-ever volumes during the quarter. However, falling edible oil prices is likely to have hurt revenues.

"During the quarter, the company recorded overall volume growth of 6 per cent, however, lower pricing of edible oils in line with the fall in the cost of raw materials (crude edible oils), resulted in a revenue decline of 15 per cent year-on-year," Adani Wilmar said.

The company said it saw a 4 per cent volume growth in branded edible oils in the third quarter, but for the overall edible oils segment, volume growth remained flat year-on-year in the same period due to subdued demand from institutional clients.

Nomura Securities expects a sales growth of 4 per cent year-on-year for FMCG companies in the December quarter. Also, while gross profit margins are seen improving, higher advertising and promotional spends are likely to restrict EBITDA (earnings before interest, taxes, depreciation and amortization) growth to around 7 per cent.

"Overall consumer demand in the third quarter likely remained weak and was similar to that of the second quarter, despite being a festive quarter," said Nomura analysts Mihir Shah and Umang Parekh.

The analysts noted that the festive season failed to drive demand improvement, despite the season falling in the third quarter this time around, compared with the second quarter last year.

"Rural recovery for organised companies was slower than expected, as consumers seemed to be cautious about spending, and as a result upgrades to better products got stalled," said Shah and Parekh.

Uneven and marginally below-normal monsoon season also didn't help as it impacted Kharif harvests of foodgrains slightly and the rabi sowing was also likely down around 3 per cent year-on-year to mid-December 2023, said the analysts.

Emkay Global Financial Services analysts Nitin Gupta and Soham Samanta too expect a "lackluster" quarter for FMCG companies, especially in the India business.

"From the domestic perspective, demand for winter-centric products has been subdued due to a weak winter - growth is primarily a factor of robust placement of products with trade in October, but tertiary sales have not revived, given a frail winter. Rural demand is lackluster, with moderate improvement," the analysts said.

In the near-term the demand recovery outlook looks "grim," said Gupta and Samanta, adding that with elections and expectations of a better summer, companies are now hoping demand to recover in the next (2024-25) financial year.