Nifty 17451.85 (1.60%)
Sensex 58576.77 (1.64%)
Nifty Bank 37305.25 (1.88%)
Nifty IT 35928.75 (1.86%)
Nifty Financial Services 18302.4 (1.80%)
Adani Ports 760.50 (2.12%)
Asian Paints 3117.25 (2.87%)
Axis Bank 697.95 (1.59%)
B P C L 391.20 (0.88%)
Bajaj Auto 3310.25 (0.72%)
Bajaj Finance 7338.95 (3.32%)
Bajaj Finserv 17625.00 (3.02%)
Bharti Airtel 718.55 (2.82%)
Britannia Inds. 3565.25 (2.62%)
Cipla 894.45 (0.58%)
Coal India 150.65 (0.00%)
Divis Lab. 4603.80 (-0.45%)
Dr Reddys Labs 4580.20 (1.32%)
Eicher Motors 2490.55 (0.76%)
Grasim Inds 1720.35 (2.06%)
H D F C 2855.20 (1.34%)
HCL Technologies 1170.15 (1.78%)
HDFC Bank 1549.75 (1.58%)
HDFC Life Insur. 685.05 (-1.35%)
Hero Motocorp 2489.15 (1.11%)
Hind. Unilever 2333.65 (0.52%)
Hindalco Inds. 453.85 (2.56%)
I O C L 120.35 (-0.21%)
ICICI Bank 756.30 (2.95%)
IndusInd Bank 946.40 (2.13%)
Infosys 1746.75 (2.05%)
ITC 223.45 (1.27%)
JSW Steel 671.35 (1.62%)
Kotak Mah. Bank 1932.95 (-0.22%)
Larsen & Toubro 1831.05 (1.83%)
M & M 833.00 (0.85%)
Maruti Suzuki 7300.00 (1.58%)
Nestle India 19400.05 (0.29%)
NTPC 126.85 (1.20%)
O N G C 148.50 (1.78%)
Power Grid Corpn 205.25 (-0.27%)
Reliance Industr 2418.30 (1.53%)
SBI Life Insuran 1164.05 (0.42%)
Shree Cement 26200.00 (1.76%)
St Bk of India 490.30 (2.85%)
Sun Pharma.Inds. 753.25 (1.28%)
Tata Consumer 766.25 (0.73%)
Tata Motors 490.75 (1.86%)
Tata Steel 1173.90 (2.18%)
TCS 3628.00 (1.21%)
Tech Mahindra 1603.85 (1.73%)
Titan Company 2398.20 (0.74%)
UltraTech Cem. 7415.00 (1.58%)
UPL 730.40 (0.47%)
Wipro 641.95 (1.51%)
by 5paisa Research Team 19/10/2021

Macro Environment overview of FY22 so far

- With layoffs and salary cuts, majority of the households have felt the pressure so much so that their spends on the daily essentials dramatically reduced. No new household have been formed with a deceleration seen in the household sales. Hence, no new consumption sales have seen any demand either.

- The trend of spending towards need-based consumption over discretionary consumption still continues in FY22. As buying daily essentials is wiser than buy a piece of furniture (worth a week’s or month’s grocery) as we survive through the Pandemic.

What has led to such muted performance in FMCG sector in FY22 so far?

  • The consumption rate of various daily essential products has been capped at present. Going forward, the FMCG companies must achieve equal or greater than equal sales growth numbers in order to remain profitable. Else, profits made by some would be at the cost of others.
  • The demand trend in private consumption, which makes up ~60% of Indian economy, continues to underperform. Such laggard performance, directly affects the GDP growth. Technopak estimates 9.5% GDP growth in FY22.
  • The Indian commodity prices trend to hold their high guard and would refuse to get any cheaper before December 2021 or January 2022
  • With Covid restriction easing, allowing wedding celebrations, malls, restaurant, etc. to operate, the demand and spending is diverted from core FMCG services.

Food & Non-food FMCG perfomance:

With food services being suspended by COVID-19 regulations, demand drove from food services towards packaged foods. This boosted the Food-FMCG sales and would continue to do so, if the demand for food services do not rampant upon restrictions easing.

The non-Food FMCG products are gaining tractions with D2C brands offering products that are of premium quality but at reasonable rates. Such companies become favourite acquisition targets of FMCG majors

Technopak estimates Food-FMCG to grow to ~11.5% and Non-food FMCG to grow to ~7.6% in FY22 

Inflation crisis

For the remaining of FY22, the Inflation is expected to be around ~5% levels and does not seem drop 5%. It is assumed that the Inflation trajectory will rather be gradual than a sudden increase depending on various economical factors and the stability to be achieved by FY23

Inflation directly affects the FMCG sector as it affects the raw material prices and income. Prices increasing is a common phenomenon in this sector, however this happens when its understood that the inflation is not temporary.

Business strategy to abide by:

The bigger FMCG players are speeding up to gain and consolidate their market share in their core markets. In turn, causing a relatively heavy effect on the smaller players in the same market.

  • With increasing inflation and possible decline in sales, the FMCG players will be more focused on maintaining their margins. The only way to attain this is scrapping the distributors cut and selling the product directly to the customers.
  • The D2C strategy works well for the bigger players to stay relevant, gain online presence and get secondary data to provide last mile delivery. The strategy works simply acquisition of a D2C brand once it achieves a certain level of success in the market.

Why D2C Brands? D2C brands are quick in capturing a niche market, lesser rigidity and more efficient operations, transparent in service and prices, have an omnichannel (online & offline) of selling and to grow beyond a certain level strategic investment is required which the bigger FMCG player can easily provide with.

  • The regional players have a strong grip on their market share and continue to do so.
  • Some of the FMCG companies have also learned to diversify their catalogue. These companies support innovation of products beyond their traditional products and have achieved organic growth. ITC is being the prime example.

Growth inhibitors of FMCG major players

- The traditional FMCG players are getting a tough competition from new private labels in FY22. DMart gains ~30-35% sales alone from its private players.

- The increasing inflation and decreasing demand, will lead to a stunned growth. The decreasing demand especially from rural and semi-urban areas affects the growth on a larger scale.

- FMCG players face certain limitations in regards to innovations. These limitations come from scarcity in number of quality retail shelves. For example, innovating temperature-controlled products would not feasible if the retail shelves are not available for them.  

- The FMCG sector has seen a robust growth in emerging players who now capture new demand worth Rs. 30-40bn. This trend is celebrated and is expected to continue in the future.

Festive season expectations

With festive season around the corner, Covid restriction easing and the rumor of third wave fragmenting, the FMCG players are hopeful of a good performance Q3FY22.

The expectation of increase in demand is expected to be good in areas where malls and food services are now operational. The sales growth targets may be achieved in anticipation of with various products bundled together and offered as gifts.

Digital operations are also expected to continue with trade operations operating at full speed.

Advertisement & Sales Promotion
It is predicted that the companies may spend on their sales and marketing strategies little more than they did in FY21. This is due to the increased competition among the market players. 30-35% of the spending is expected towards digital marketing to reach larger crowds. Companies with single products might be impacted more than companies with diversified product portfolios.

Open Demat Account

Enter First Name & Last Name
Enter Mobile Number
Enter correct otp
Please enter referal code
Start investing in just 5 mins
Free Demat account, No conditions apply
  • 0%* Brokerage
  • Flat ₹20 per order
Next Article

Start Investing Now!

Open Free Demat Account in 5 mins

 
 
There is some issue, try later