India’s fast-moving consumer goods (FMCG) sector is set for a positive first quarter (Q1) in the current fiscal year (FY25) on the back of a revival in rural demand, according to leading companies. While urban demand is expected to remain stable, rural markets are emerging as a key growth driver, signaling a shift in consumer trends after months of slowdown.
Recovery in Rural Markets
FMCG majors Marico, Dabur, and Adani Wilmar have expressed optimism for Q1FY25, anticipating revenue growth in the mid to high single-digit range. However, volume growth projections paint a slightly different picture. Marico and Dabur acknowledge that volume growth may be modest due to sluggishness in the general trade channel, which contributes a significant portion (75-80%) of their sales.
Modern Trade and E-commerce to the Rescue
Modern trade and e-commerce channels, which together account for 20% of FMCG sales for these companies, are expected to witness a strong double-digit growth during the quarter. This trend highlights the growing importance of these alternative channels in reaching consumers, particularly in urban areas.
Adani Wilmar Bucks the Trend
Adani Wilmar, a prominent player in the edible oils and food products segment, stands out from the pack with a projected 13% volume growth in Q1. This robust performance is attributed to their strong sales and distribution push, which has helped them overcome challenges like decreased out-of-home consumption and seasonal dips in summer demand for edible oils.
Rural Focus Holds the Key
The renewed emphasis on rural markets is a strategic move for FMCG companies. Marico, Dabur, and Adani Wilmar all derive a significant portion of their sales (over a quarter for Marico and a third for Adani Wilmar) from villages and small towns. Market research firms Kantar and Nielsen corroborate this shift, reporting that rural markets have become a “bright star” for the sector. After lagging behind urban growth for five quarters, rural demand overtook its urban counterpart in the three months leading to March 2024. This trend is expected to continue in Q1FY25, with rural growth projected to surpass urban growth.
Profitability on the Rise
Marico and Dabur anticipate an expansion in gross margins for Q1FY25 due to a favorable portfolio mix. They also expect operating profit to grow at a faster pace than revenue, resulting in a slight increase in operating margin year-on-year. This indicates improved profitability for these companies despite potential challenges in the market.
Maintaining Brand Focus
While navigating the current market landscape, FMCG companies are prioritizing brand building for long-term success. Both Marico and Dabur acknowledge their continued investments in brand promotion and marketing activities. These efforts aim to strengthen the long-term equity of their existing brands and franchises while also supporting the growth of new product lines in a competitive market.
International Markets: Mixed Signals
The international business segment for both Marico and Dabur presents a mixed picture. In constant currency terms, both companies anticipate double-digit growth, reflecting strong performance across their overseas markets. However, currency depreciation in countries like Turkey and Egypt might negatively impact the translated growth figures.
Looking Ahead
The FMCG sector’s optimism for Q1FY25 reflects a renewed sense of confidence in the Indian market. The revival in rural demand, coupled with the stability of urban markets and the growth potential of modern trade and e-commerce channels, paints a positive picture for the industry. While challenges like sluggish general trade and fluctuating input costs persist, FMCG companies are well-positioned to navigate these headwinds through strategic product mix adjustments, brand building initiatives, and a continued focus on rural markets. The success of Q1FY25 will be closely watched as it sets the tone for the overall performance of the FMCG sector in the remaining quarters of FY25.
