With the fiscal third quarter earnings season now over, here is a look at how the FMCG industry performed during the last quarter. Elara Securities said that Nifty FMCG has underperformed Nifty 50 by 2 per cent (up at 10 per cent CAGR) since FY19. This, it added, has come after a strong 8 per cent outperformance (versus Nifty 50) in the prior nine years through FY10-19.
“While in Phase I (FY11-15), growth was close to mid-teens with modest margin expansion for large companies, Phase II (FY16-20) witnessed significant margin expansion even as revenue grew in mid-single digit. Holding on to benefit from the cyclical uptrend in revenue growth as also consistent margin expansion has been the investment strategy as regards FMCG plays. However, Phase III (FY21-24) has been marked by lower revenue growth with no margin expansion. So, we prefer plays with better revenue growth and stable EBITDA margin in FY26E versus FY24,” Elara Securities said.
NielsenIQ maintained that the FMCG industry grew by 10.6 per cent in terms of value in the third quarter compared to the year-ago period on the back of 7.1 per cent rise in volume and 3.3 per cent increase in prices.
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Acquisitions for growth
In the next phase, Elara Securities said, FMCG players will be forced to go for more acquisitions and scale-up adjacent portfolios. Increasing competition with the emergence of alternate distribution channels and new layers – D2C and regional, per the brokerage firm, would keep a check on margins. While the tax relief to consumers announced in the Union Budget 2025 would increase disposable incomes, it would not substantially benefit FMCG companies and should aid a reversal of the downtrading trend.
Revenue growth challenges
The past two quarters witnessed FMCG sales remaining subdued even as rural demand has reported a gradual recovery, led by normal monsoons and a lower base – FY24 rural volumes grew by 6 per cent. Urban demand, meanwhile, is decelerating with reducing disposable incomes and higher base – FY24 urban volumes grew by 8 per cent.
Per the analysis report by Elara Securities, key highlights from Q3FY25 management commentaries were consumers downtrading to smaller packs in the premium segments and capping of margin expansion in the medium term (maintaining margins being the best case).
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