Rural push to boost FMCG companies' toplime next year: Report

Mumbai, Dec 28 (PTI) The fast moving consumer goods(FMCG) sector, which has been down in the dumps in the pasttwo years with a tepid 4 per cent revenue growth, is poisedfor a "mean revision" with government shifting its focustowards boosting growth ahead of the next hustings.The sector, which has been subdued lately, saw anannual revenue growth of 13 per cent through the last decade,says an HDFC Securities report today."There is significant scope for an upward revision inrevenue growth in the next year, with government shiftingfocus towards boosting GDP ahead of the Lok Sabha elections inthe Summer of 2019," the report said but did not offer agrowth number.Blaming the challenges in rural markets, low wagegrowth and a deficient monsoon in FY15 and FY16 for the poorrevenue growth, the report said the sector was further bruisedwith unprecedented events like demonetisation and GST in FY17.But the report warned that "most macro indicators likerural wages, agricultural growth, minimum support prices(MSPs), job creation and RBI's consumer confidence index) arestill not reflecting a meaningful recovery."However, an expected shift in government focus fromstabilising the economy to accelerating growth in the run-upto the 2019 elections will take the sector to better future.The report points out that most FMCG companies haveseen improved revenue growth after GST rollout, and most tradechannels have begun to normalise after GST shocks."There is significant scope for a mean revisiontowards its 10-year annual revenue growth of 13 per cent," thereport noted.Most companies are witnessing green-shoots in therural market, and expect that government focus on improvingrural incomes will boost demand, it said, adding companieswith a higher exposure to rural markets "can surprise ongrowth."It also said modern trade and e-commerce will continueto grab share from general trade, leading to better tractionin the urban market, thus placing the sector for acceleratedearnings."Pricing power, lower commodity prices, supply chain efficiencies and cost optimisation have helped boost operating margins for the sector so far, and this can further improve by about 150 bps in the next few years, led by higher revenue growth, rising premiumisation, GST-driven efficiencies and cost optimization," it concluded.

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