Rural demand in FMCG sector will grow more in the coming quarters: Axis Securities

India's Fast-Moving Consumer Goods (FMCG) sector demonstrated resilience and adaptability in the first quarter of FY25, with top-line growth primarily driven by a sustained recovery in rural demand, according to an Axis Securities report. Despite challenges such as severe heatwaves in northern regions, heightened competition, and the impact of the upcoming general elections, most FMCG companies achieved mid to high single-digit revenue growth. This growth was largely attributed to volume recovery, with rural markets significantly improving, surpassing urban growth. Factors such as a normal monsoon, strategic rural distribution expansion, and the launch of region-specific products contributed to this positive trend.

However, the first quarter of FY25 saw a deceleration in gross margin growth due to high margins in the base period and increased volatility in raw material prices, particularly agricultural commodities. Higher advertising expenses to regain market share also contributed to slower EBITDA margin expansion. These investments are expected to provide long-term benefits, positioning companies for future growth. The sector remains positive, with potential for expansion in under-penetrated categories like shampoos and premium detergents. Increasing rural demand, boosted by government spending and a strong festive season, is expected to support growth further. Companies must navigate volatile raw material prices, which could impact margins. The FMCG sector offers attractive investment opportunities with strong return ratios, including Return on Capital Employed (ROCE) and Return on Equity (ROE).

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.