Overall improvement in demand sentiment and green shoots of recovery visible in the urban areas are likely to ease the pains of FMCG companies from the January-March quarter, according to industry experts.
However, they noted that commodities like coffee, tea, and cocoa continue to face inflationary pressures and will require close monitoring.
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“We expect the urban demand to at least start seeing green shoots, if not full recovery in Q4,” said Ajay Thakur, Research Analyst at Anand Rathi Institutional Equities.
According to Kinjal Shah, senior vice-president and co-group head of Corporate Ratings at Icra, the urban demand would also be aided by the income-tax relief in the Union Budget 2025 and the monetary easing by the Reserve Bank of India.
In the Budget, the Centre raised the income tax exemption threshold to Rs 12 lakh per annum. In February, the RBI also cut the repo rate by 25 basis points to 6.25%, its first reduction in five years.
FMCG majors have faced soft demand conditions for over 10 quarters. While they note a recovery in rural areas, urban demand remains relatively sluggish.
Last month, consumer intelligence firm NielsenIQ reported that urban consumption growth rose nearly 2X in the October-December quarter at 5% from 2.6% in the July-August quarter.
Marico managing director and CEO Saugata Gupta, in a recent interview, said that the company believes the worst is over on the demand front.
“Obviously, the improvement will not be like a hockey stick or kind of a U-turn, but it will improve, definitely,” he said.
Several QSR firms like Devyani International, which operates KFC and Pizza Hut, have also pointed out towards a revival in urban demand. The QSR industry banks mainly on the consumption spending.
Experts said that the full recovery in the urban demand, however, may take up to 6 months.
While the demand seems to be recovering, the FMCG companies continue to struggle with high prices for some raw materials.
According to industry data, coffee prices have more than doubled in the last one year. Wheat and Palm Oil prices have jumped 31% and 20% respectively.
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