FMCG sector to experience mild revenue rebound to 6-8% next fiscal: Crisil

20 Mar 2025 Evaluate

Crisil Ratings has said that the Indian FMCG sector is expected to witness a mild revenue rebound of 100 to 200 basis points to 6-8 per cent in fiscal 2026 owed to a gradual recovery in urban and steady rural demand, while in ongoing 2024-25 fiscal the sector is expected to have a modest revenue growth 5-6 per cent as the volume rises 4-6 per cent. It expects another 2 per cent revenue uptick to come from realisations as FMCG companies partly pass on the impact of inflation in key categories such as soaps, biscuits, coffee, hair oil and tea, while the pricing action will be driven by elevated prices of key inputs such as palm oil -- a key input for all three segments - F&B, personal care and home care -- coffee, copra and wheat. Crisil expects credit profiles of FMCG companies to remain stable with operating profitability to stay flat but healthy at 20-21 per cent in fiscal 2026.

Crisil, on the demand growth prospect, expects a modest recovery in volume as moderating food inflation, easing interest rates and tax relief measures announced in the Union Budget for the next fiscal will encourage urban demand, while continuous allocation to welfare schemes and a hike in minimum support prices will nurture demand growth in Rural areas. It has noted that traditional FMCG companies also have had to contend with rising competition, while the regional and local companies have been gaining with consumers downtrading to lower-priced brands. Additionally, the rising preference for digital channels has opened distribution avenues on a much larger scale for direct-to-consumer (D2C) companies.

The rating agency highlighted that the urban markets accounts for about 60 per cent of revenue, while rural market accounts for the rest. It added that nearly half of the sector's revenue comes from the food and beverages category, while the personal care and home care category accounts for a quarter each. It also added that high food inflation, elevated interest rates and sluggish wage growth impacted urban consumption across segments in fiscal 2025, with personal care and certain F&B sections taking a bigger hit. However, rural volume has recovered and outpaced urban in the past few quarters after another spell of adequate monsoon. Crisil also noted that input price, monsoon and utilisation of higher disposable incomes by households are the important factors to be watched for in upcoming times.

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