IGI Logo

Value pack drives growth; volume recovery on the horizon

The 14th CII FMCG Summit highlighted the critical growth enablers that will ensure business continuity and drive momentum across the industry in the future.

? FMCG is a sizable and profitable sector, with total spending of nearly INR5.4t in the last five years and EBITDA margin of ~20%.

? Over the last 15 years (FY08-23), India's real GDP has seen a CAGR of 5.9% and household consumption has increased at a CAGR of 6.1%, whereas the FMCG industry has seen volume growth of 3.4%.

? In 15 years, the first half (FY08-FY16) saw 3.5% growth, while the second half (FY17-23) saw 2.9% due to disruptions caused by demonetization, GST implementation and Covid. In India, people in the middle-income group account for the majority of FMCG consumption.

? Affluent segments, such as aviation, have also grown, reflecting higher incomes. In the last 15 years, income distribution has widened, and rural and urban households have expanded.

? In the last few years, there has been a shift in the retail landscape, as the channel mix is evolving, consumer spending is moving from offline to online, and multiple new formats are emerging in both the offline and online channels. Many of these new formats have also driven significant changes in consumer shopping behavior by making it more convenient and faster and providing access to large varieties.

? Despite stable consumption, volume is decreasing due to factors like distribution, media spending, and pricing, all moving in the upward direction.

? In the next 10 years, volume growth is expected to be driven by category development, expansion in distribution, innovation, customer education initiatives, and improvements in supply-side constraints.

Our top picks

We prefer ITC, Godrej Consumer Products (GCPL) and Tata Consumer Products (TATACONS): For ITC, The cigarettes business continues to deliver volume growth and market share gains in the absence of competition from illicit trade. The FMCG - Others segment has also delivered strong growth across markets and product lines, and as input prices decline, we also expect margin expansion. GCPL has been moving in the right direction in terms of enhancing sales growth in the Indian market. Here, GCPL is still exhibiting double-digit growth with strong volume growth across all categories and improvements in the quality of earnings. We anticipate that GCPL’s profitable growth will be led by its focus on category development, brand investment, market penetration, and product introductions. We are bullish on TATACONS due to its two-pronged growth strategy: 1) focusing on new growth engines such as Tata Sampann, NourishCo, Tata Soulful, and the ready to-eat/readyto-consume business (Tata Smart Foodz); and 2) rapid expansion in its distribution network while enhancing digital capabilities throughout the supply chain.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412