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FMCG firms staring at worst slump in 15 years

September 19, 2019 16:05 IST

The slowdown had been brewing since 2016 but was intensified further by several disruptions in the past two years including demonetisation.

Even though the festive season is around the corner and the good monsoon has given hopes of revival for the FMCG sector, a recent report by Credit Suisse has said that FY20 is likely to be the worst in 15 years for revenue growth of consumer packaged goods firms.

According to the report, the slowdown had been brewing since 2016 but was intensified further by several disruptions in the past two years including demonetisation.

 

“In our assessment, the slowdown started in 2016.

"It was camouflaged first by trade disruptions in 2017 caused by demonetisation and the goods and services tax (GST), and then by a low base effect, leading to high growth in FY19,” it added.

The revenue growth of FMCG sector in the country grew at a compound annual growth rate (CAGR) of around 7 per cent, it added.

“We downgrade Britannia to neutral (from outperform) as its core category of biscuits has slowed down sharper than the FMCG average,” said the report.

The cookies maker, which draws about 80 per cent of its revenue from the biscuits business could not be reached for a response.

Its managing director, Varun Berry, during an analyst call last month, had said that consumers were thinking twice about buying products worth just Rs 5.

It has also downgraded Pidilite to underperform from neutral citing stretched valuations and slowdown in real estate linked businesses.

It further stated that no firm would be immune to the slowdown though some of them such as Nestle, Dabur, and Colgate are expected to gain market share.

“We expect Nestle to grow relatively faster than other firms as it is gaining market shares, there is a strong pace of innovations, including entry into new categories, and it has low salience of rural where the slowdown is more intense.”

The brokerage firm also expects Dabur to grow ahead of peers as it is gaining share in most categories due to company-specific plans and the loss of share of rival Patanjali.

According to the report, Colgate is also likely to grow ahead of oral category growth as it focuses on the naturals segment and there has been a drop in shares of Patanjali.

Photograph: PTI Photo

Samreen Ahmad in Bengaluru
Source: source image