FMCG Industry Q4FY14:Preview

Slowdown in discretionary consumption and persistent macro-economic challenges keeps the performance of FMCG industry under pressure. The FMCG industry continues to witness demand challenges. As a result, industry growth has further slowed down in Q4FY14 across categories, channels and markets. Consumer spending is slowing down due to high CPI inflation. Along with the slowdown in urban demand, the rural demand is also showing signs of slowdown, which is a cause of concern.

Cost push inflation may reduce the profitability margin of the companies. During the quarter, most of the raw material for FMCG industries like copra, milk liquid & PFAD (Palm Fatty Acid Distillate) have increased significantly by 77%, 45.6% and 35.4% respectively on Y‐o‐Y basis. Further, prices of Wheat, Barley, Caustic Soda & Soda Ash  have also increased by 3.9%, 2.3%, 6.2% and 5.6% approximately on Y‐o‐Y basis. Moreover, hailstorm in several parts of the country may worsen the performance of the industry. However, the companies have taken up this pricing in the quarter to pass the increased price of raw material. So we expect price driven growth to play a larger role in the overall revenue mix, but on the volume front, their performance may remain muted even though the companies have increased promotions and generally fourth quarter is considered as sales season.

If we look at the performance of the BSE FMCG index in Q4FY13, we find that it has marginally outperformed as compared to BSE Sensex. During Q3FY14, BSE FMCG index gained 6.15% while BSE Sensex was up by 5.70% in the same period.