DSIJ.in JULY 22 - AUG 4, 2019 I DALAL STREET INVESTMENT JOURNAL (^83)
The lacklustre growth in the industry has led to lower inventory
turnovers, which resulted in pile up of inventories, thereby
stretching working capital and higher debtor/creditor days.
Thus, the small firms operating in the industry might be going
through working capital funding issues due to liquidity crunch
among NBFCs who were aggressive in this segment.
The rural segment is a major revenue contributor to the FMCG
sector (45 per cent of revenue). In the past, the rural
consumption has grown faster than the urban. Thus, the
slowdown in demand from the rural segment has dampened
the growth of overall FMCG sector. The e-commerce's share in
the overall FMCG sales on 2018 was merely at 1.3 per cent, but
in the years to come, this share likely to touch double digit.
To analyse the industry trend of FMCG industry, we have taken
38 companies' financial performance into consideration.
The total sales of these companies for FY19 grew in high
single digit 8.2 per cent over the previous fiscal. The company
that outperformed in the FY19 is Zydus Wellness, which
reported significant jump of 68 per cent in the revenue. Also,
companies like KRBL, VIP Industries and Parag Milk reported
revenue growth of 27 per cent, 26 per cent and 23 per cent,
respectively.
However, the worst performer during the period was Prabhat
Dairy, whose revenue plunged nearly 85 per cent owing to sale
of its core business. The other players that reported negative
revenue growth were Rasoi (revenue down by 11 per cent) and
Godfrey Phillips (revenue down by 10 per cent).
The operating profit of the these companies surged nearly 29.4
per cent yoy in FY19 to 41766.32 crore. The top performers in terms of operating profit were ADF Foods and Godfrey Phillips, which reported 80 per cent and 56 per cent yoy growth. However, companies like Prabhat Dairy, Rasoi and Avanti Feed reported 98 per cent, 61 per cent and 40 per cent fall in the operating profit in FY19. Notably, the net profit of all the 38 companies surged nearly 50 per cent yoy to29065 crore. The company that reported
exceptional profit was Foods & Inns, which reported PAT of
109.22 as against3.47 crore. However, this was aided by
higher non-operating income. The other companies that
reported PAT growth in the range of 60-82 per cent are Sukhjit
Starch & Chemicals, Godfrey Phillips India and Jubilant Food.
However, Ruchi Soya Industries and Prabhat Dairy reported 98
per cent and 97 per cent fall in PAT respectively.
Outlook
The per capita consumption in countries like Indonesia and
China is 2x and 4x that of India, which provides strong
headroom for India's consumption story in the long run.
Additionally, lower penetration provides opportunity for
growth.
More than 65 per cent of India's population lives in rural areas
and the rural populace spends almost half of its total
expenditure on FMCG products. Thus, the government's
impetus to increase incomes of rural households should lead to
the growth of FMCG sector. Further, FMCG players are
investing to increase their distribution network, which would
help companies to tap the untapped rural market and in turn
would result in higher penetration. Also, the introduction of
small-sized packs to attract the rural population would
contribute to the growth of FMCG players. In addition to these,
an increase in minimum support prices, farm loan waivers and
increased government focus on farm income should contribute
to demand revival in the rural segment.
The rising aspiration levels of the Indian consumer, mainly on
the back of rising income levels, changing demographics and
increasing urbanisation, is driving the growth in premium
products. These products not only provide incremental revenue
growth for companies, but also help improve margins.
FMCG sector in India is highly fragmented and majorly
dominated by the small and unorganised players. Going
forward, with the implementation of the GST, the share of the
organised sector in India's overall FMCG market is expected to
grow further.
India has favourable demographics that majorly consist of
population under the age of 25 years. It is projected to have the
world's largest workforce by 2027. Basically, India is going
through a demographic transition, which in turn provides huge
legroom for consumption growth and thereby growth of the
FMCG sector. In addition to this, the rising prosperity level and
disposable incomes, coupled with low penetration level and per
capita consumption provides an opportunity for growth.
However, the slower demand recovery and higher spend on
promotional activity may act as a hurdle in the growth path of
the FMCG companies.
The rising aspiration levels of the Indian consumer owing to
increasing income levels, changing demographics and
increasing urbanisation, is expected to drive the growth of
premium products which not only provide incremental
revenue growth for companies, but also help improve margins
and thereby lead to higher profitability. The monsoon has
started on a delayed note but if reaches normal levels during
rest of the season, it would be big boost for Kharif production
in the country. The increase in MSPs for Kharif crops would
further aid agri-income which in turn should push the rural
demand. The FMCG market in India is estimated to increase
from USD 52.75 billion in FY 2017-18 to USD 103.7 billion by
- In the near term, there is likely to be demand pressure,
however, in the long term, the demand is likely to pick up,
thereby benefiting the FMCG companies.