BHUBANESWAR: A revival in rural demand coupled with new product launches may help boost the topline growth of the Rs 3.4 lakh crore fast moving consumer goods (FMCG) sector by 300-400 basis points to 11-12 per cent this financial year, according to rating agency Crisil.
The rural economy may get a leg-up from the higher minimum support prices (MSP) announced by the Centre and also a favourable monsoon rainfall, more non-agriculture rural employment, which in turn will increase farmers’ disposable income, leading to consumption demand. From the marketers’ side, continuing product launches and greater acceptance of Ayurvedic and herbal products will also help.
“Therefore, revenue growth from the rural segment which contributes 40-45 per cent of the total income of the sector, will improve to 15-16 per cent in fiscal 2019 compared to 10 per cent estimated for fiscal 2018,” the report noted.
According to Crisil, revenue growth has partially recovered from the five-percentage-point range during fiscals 2016 and 2017, a period that saw sluggish rural demand resulting from weak monsoons, intense competition and demonetisation. Revenue growth from the urban segment, on the other hand, is expected to stay steady at eight per cent in FY19.
While mid-sized and medium-sized firms will have an edge because of better-operating efficiencies in the GST regime and may clip at 15-17 per cent, the report states that large firms are seen growing topline to 11-12 per cent. Smaller firms will continue to be buffeted by competition and GST, and register modest growth.
“Given the prospects, we see large and mid-sized firms augmenting growth through two flanks: acquisitions and new launches,” said Anuj Sethi, senior director, Crisil Ratings. Healthy cash generation and prudent working capital management, along with deep pockets will allow for higher spend on acquisitions. Sethi added that small regional players with established brands would be acquired by larger peers, even if such deals are expensive, to reduce time to market.