FMCG Sector Braces for Modest Growth in FY25 Amid Rural Demand Challenges
India’s fast-moving consumer goods (FMCG) sector is expected to post low single-digit revenue growth in FY25, according to the latest projections. Headwinds from sluggish volume growth and tepid recovery in rural consumption are likely to weigh on earnings, despite signs of stabilizing inflation and an improving macroeconomic environment.
The forecast, based on analysis from credit rating agency ICRA, estimates FMCG revenue growth between 3% and 5% for the upcoming financial year. This follows a muted FY24, where the sector saw mid-single-digit revenue growth, mainly driven by price-led factors rather than volume expansion.
“Weak rural demand, intensified competition from unlisted regional players, and sustained high competitive intensity are limiting the sector’s near-term upside,” said ICRA in its sector outlook report. While easing raw material prices in key categories such as edible oils and packaging are providing some margin relief, companies continue to struggle with reviving rural sales, which constitute a significant portion of their business.
Softening Input Costs Offer Margin Support
Despite the sluggish top-line growth, profit margins are expected to remain healthy. Operating profit margins for FMCG companies are projected to expand by up to 100 basis points in FY25, supported by moderating input costs and operational efficiencies. Average operating margins stood at 20.6% in the first nine months of FY24.
The decline in global prices of crude oil derivatives, palm oil, and other inputs has reduced cost pressures, enabling companies to focus resources on branding and distribution expansion, particularly in rural markets.
Rural Market Recovery Remains Key
Rural demand, which has lagged behind urban markets following the pandemic, continues to be a focal point for FMCG firms. Companies are deploying targeted promotional strategies and pack-size innovations to win back price-sensitive rural consumers. However, the recovery has been inconsistent, partly due to uneven monsoons and inflationary impacts on agrarian incomes.
Analysts suggest that growth will remain subdued unless rural sentiment improves significantly. Urban demand, though relatively stable, is not sufficient to offset the rural shortfall, particularly in discretionary categories.
With FMCG companies maintaining a cautious optimism, strategic investments in operational efficiencies