A revival in rural demand
and new product launches are likely to push up revenue growth
of the fast-moving consumer goods (FMCG) companies in 2018-19 (FY19), a report released Tuesday by ratings agency Crisil
said. The agency said the increase would be to the tune of 300-400 basis points over the previous year, when revenue growth
was 8 per cent.
The study said that the improvement in revenue growth
of FMCGs would positively affect their operating performance and benefit their credit profiles, a move that will augur well for firms seeking to raise money through debt.
analysed 49 companies, which included 48 rated firms and a large unrated domestic player active in the ayurveda and herbal domains, to arrive at its findings. This base constituted 45 per cent of the industry’s revenue, Crisil
said, implying that some of the top FMCG
companies in India including Hindustan Unilever, Godrej Consumer, Dabur, Marico, and Patanjali
Ayurved were part of the study.
While the rate of revenue growth
would not be uniform across companies, Crisil
said, large and mid-sized firms would be in a better operating position vis-à-vis smaller firms in FY19 due to operating efficiencies derived in the goods and services tax (GST) regime.
“Operating profitability of large and mid-sized FMCG
firms is expected to sustain at healthy double-digit levels, while competitive intensity and regulation would continue to crimp small companies, resulting in thin profitability,” the study said.
Top lines of large firms, the study said, would grow at the industry average of 11-12 per cent in FY19, while mid-sized firms would continue growing ahead of it, at 15-17 per cent, and smaller firms would see modest growth. “Top line growth of smaller firms would continue to be buffeted by intense competition and GST, while mid-sized firms would grow ahead of the market on the back of wider geographical reach and customisation of products to regional preferences,” the study said.
It is important to note that the Rs 3.4 trillion FMCG
market in India has seen disruptions in the last year and a half, led by demonetisation in the three months ended December 2016 and then followed by the introduction of the GST in July 2017.
While the third and fourth quarters of FY18 saw companies gain optically from a low base in the year-ago period, top line and bottom line growth, Crisil
said, would be more sustainable in FY19.
also said FMCG revenue growth
from the rural areas would improve 500-600 basis points in FY19 to touch 15-16 per cent versus 10 per cent seen last year. This is a gradual increase in rural revenue growth, Crisil
said, from levels of 5 per cent each in FY16 and FY17, led by higher minimum support prices for crops, more non-agriculture rural employment, and expectation of adequate monsoon. Continuing product launches and greater acceptance of ayurvedic and herbal products would also help, the study said, as rural consumers followed their urban counterparts to go for chemical-free products.
revenue growth, on the other hand, would be stable at 8 per cent, the study said, as cities largely remained saturated from a growth point of view.
“Given the prospects, we see large and mid-sized FMCG
firms augmenting growth through two flanks — new launches and acquisitions,” Anuj Sethi, senior director, Crisil
Ratings, said. “Small regional players with established brands are likely to be acquired by larger peers, even if such deals are expensive, to reduce time to market,” he added.