Weak urban demand, inflation likely to hit FMCG volumes in Q4FY25

Dabur India, maker of Hajmola candy and Real fruit juices, said that its India FMCG business is likely to decline to mid-single digits due to delayed and truncated winters

Subdued demand, especially in the urban sector, coupled with inflation, is likely to drag down the volumes of fast-moving consumer goods (FMCG) companies in the fourth quarter (Q4) of 2024-25 (FY25).

 

In its quarterly update, Dabur India, the maker of Hajmola candy and Réal fruit juices, said its India FMCG business is likely to decline to mid-single digits due to delayed and truncated winters and a slowdown in urban markets.

 

“As a result, Dabur’s consolidated revenue is expected to be flat during Q4,” the company said, adding, “Due to the impact of inflation, coupled with operating deleverage, we foresee Q4 operating profit margin to contract by 150-175 basis points year-on-year.”

 

The company, however, pointed out that during the quarter, rural markets continued to be resilient and grew ahead of urban markets, while its key international markets are likely to report strong growth.

 

On the other hand, Marico, in its quarterly update, said the sector witnessed stable demand trends amid an improving trajectory in rural markets and mixed trends across mass and premium urban segments.

 

The maker of Parachute hair oil said it expected the India business to post a sequential uptick in underlying volume growth with improving market shares.

 

“We expect a gradual improvement in overall consumption sentiment on the back of moderating retail and food inflation, as well as forecasts of a normal monsoon,” it observed. Marico’s estimates appear to differ from the flat trend that other consumer goods makers and brokerages have outlined.

 

According to analysts at Emkay Global, overall demand remained stressed with sustained consumer downtrading. Analysts at the brokerage, who track firms like Hindustan Unilever (HUL), Nestlé India, ITC, and Marico, said that while “FMCG companies implemented price hikes in Q4 to manage inflationary pressure, reported realisation is unlikely to improve much, as increased promotion will reflect in improving volume growth”.

 

Analysts further said that higher promotional intensity, seen across categories, is likely to affect margins. Kotak Institutional Equities said the ongoing weakness in urban consumption is likely to continue weighing on the value and volume growth of FMCG players in Q4 and the first half of 2025-26.

 

“Rural demand, which contributes about one-third to FMCG sales, continues to be stable and is likely to outperform urban demand for the fifth quarter on the trot. Inflationary pressures in a few commodities (palm oil, tea, and coffee) would mean continued margin pressure for another quarter or two,” said analysts at the brokerage, who track companies like Britannia Industries, Dabur, and HUL, among others.

 

According to a note from Nomura, FMCG sales are expected to grow 5.2 per cent due to price increases, while volume growth is expected to remain stable.

 

Sector watchers at IIFL Capital, who track Varun Beverages, HUL, Britannia, and Dabur, among others, further said that with no material pickup, volume growth trends are expected to be similar to the third quarter.

 

“With inflation in commodity costs, companies are expected to take additional price hikes, which will aid top-line growth. We expect aggregate sales growth of 8 per cent,” they added. 

INDUSTRY TALK

 

Dabur India

  - Expects mid-single-digit decline in FMCG biz due to urban slowdown and weak winter  

  - Consolidated revenue to remain flat, and operating profit margin may contract by 150-175 bps

 

Marico

  * India biz likely to see sequential uptick in volume growth

  * Rural demand stable, but urban trends remain mixed