The Rs 4 lakh crore FMCG sector will close fiscal 2020 with a 9 percent growth, down 4 percentage points and a jump in rural buying will lift the same to 11 percent in fiscal 2021, a report said on Tuesday.
The recovery in growth for the fast moving consumer goods (FMCG) sector will begin playing out from March-April 2020 riding on a jump in farm incomes, Crisil Ratings said in its report.
The estimate comes amid reports of a sharp fall in overall consumption, with one media report also claiming that there has been a de-growth in the activity for the first time in four decades. This dip in consumption is one of the most important factors dragging down the GDP growth. Better storage levels in reservoirs, which are over 40 percent higher than the year-ago period due to better rains, an 8 percent increase in winter crop output and better visibility for the upcoming seasons will lift the rural consumption, it said.
"Higher spending by the government on rural infrastructure could benefit rural incomes and thereby demand for FMCG products," its Senior Director Anuj Sethi said.He added that urban areas growth for the FMCG sector is unlikely to improve over the 8 percent level due to a growth in modern retail. However, the growth will not be uniform across companies, the rating agency said after an analysis of 57 companies which account for half of the industry's revenues.
Packaged food segment, which accounts for 50 percent of the industry's revenues will continue to grow at up to 10 per cent in fiscal 2020 and inch up to 12 percent in fiscal 2021 on a shift to branded products and deeper penetration of product segments, it said. The personal and home care segment, which accounts for a third of FMCG revenue, is also likely to see recovery in growth to 8-9 percent in fiscal 2021 from 6-7 percent in fiscal 2020 it said, attributing the slower growth to a focus on discretionary spend-driven products in the segment.
The agency said it expects the operating profits of companies to remain healthy at up to 20 percent level despite a hit of up to 1.5 percentage points on raw material costs and promotional expenses.
"The credit profiles of FMCG companies are likely to remain stable, supported by well-capitalised balance sheets," Sushant Sarode, its Associate Director, said.