Monsoon drive for FMCGs

This year, the FMCG industry will be watching monsoon trends more closely than in previous years. Rural growth has raced far ahead of urban areas in the June ’06 quarter, with sales growing by 13.6% in rural areas compared with 8.4% for urban markets.

Overall growth is 10.2%, most of which is attributable to volume growth as price hikes have been few and measured. A healthy offtake of FMCG products will result in topline growth, but assessing profit growth is trickier. On the positive side, many FMCG companies have set up and are ramping up capacities at tax havens.

This has had the effect of lowering excise duties and taxes, which has boosted sales growth and more importantly profits. The operating environment has become more difficult, with pressure on material and packaging costs, since input costs are treading higher.

What’s more, FMCG firms have been spending much higher on advertising to push their products. Despite an inflationary environment, this has not affected margins since they have a buffer in the form of savings on excise and taxes. Urban growth has been steady for some quarters now and it is now rural growth that has taken over.