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Rural economy, monsoons to boost FMCG firms in 2018: Edelweiss report

Rural markets are recovering, albeit at a slower pace, the report noted

Press Trust of India  |  Mumbai 

FMCG, goods, supermarket, groceries, grocery

In the next 12 months, consumer goods would see a revival, both in volume and margin terms, with an anticipated revival in the rural sector, said a report.

With a few state elections and expected populist budget, the rural sector is anticipated to be prime beneficiary. This, coupled with improving macros and good monsoon after two consecutive droughts, also augur well, said the report on the consumer good sector brought by Edelweiss.

"After four quarters of muted growth, the consumer goods sector is likely to clock high single to low double digit volume growth in the October-December quarter of the current fiscal, the report said.

Volumes of consumer goods companies, which rebounded marginally from GST-related destocking in the July-September quarter of current fiscal, are likely to see near normalcy, it added.

Rural markets are recovering, albeit at a slower pace, the report noted.

Gross margin expansion will be soft since have hardly taken price hikes and have in fact cut prices due to reduced GST rates, it added.

"Partially, will start spending on advertising," the report noted. However, cost rationalisation should aid EBITDA margin expansion.

The report said the sector revenue growth will revive from the second half of the current financial year. "With GST pangs largely behind, volumes of most to clock high single to low double digit growth."

are likely to clock high single digit to low double digit volume growth aided by demand levers as well as soft base, it said.

Prices of raw materials like copra, monomers and menthol, among others, have remained elevated. Prices of other raw materials like sugar, wheat flour and milk have remained flat to slightly declining, the report said.

"To offset rising raw material cost, have not been able to take required price hikes, resulting in some gross margin compression. With cost rationalisation, calibrated EBITDA margin expansion can be expected," it noted.

First Published: Mon, January 08 2018. 17:57 IST