FMCG Sector: Transforming through digitisation

The fourth-largest sector in India is fast-moving consumer goods (FMCG). Food and beverage, healthcare, and household and personal care are the three primary subsectors of this industry.

Despite the widespread lockdowns, the FMCG sector experienced a nine-year high growth rate of 16% in FY21–22. This expansion has been facilitated by rising pricing for goods, particularly basics, and consumption-led growth. Since the pandemic's outbreak, the sector has changed. Along with the local supermarkets, businesses have increased their online presence and are using digitalisation to connect suppliers, organise distribution, and manage inventory.

With this development, clients may order anything they want, whenever they want, from a selection of products via some apps. Additionally, brands are moving toward a direct-to-consumer strategy by developing their own unique websites and apps to offer consumers door-to-door services. By 2030, the e-commerce industry will account for 11% of total FMCG sales.   

This growth will also be supported by expanding rural connectivity via e-commerce platforms. Future developments in the FMCG industry's new digital era will completely transform the industry and bring consumers and businesses closer together. Companies in this industry have been able to provide consistent returns to investors by coming up with innovative solutions to overcome the difficulties caused by the pandemic. The need for FMCG items is year-round and reaches even the tiniest villages in the nation, which draws investors to this industry.

Outlook

The Indian FMCG sector is expected to increase at a CAGR of 14.9% to reach USD 220 billion by 2025 from USD 110 billion in 2020. Even while there is a steady demand for FMCG items and the industry has overcome pandemic-related obstacles, it is currently dealing with new problems brought on by the geopolitical situation and rising inflationary pressure. In the last several months, there has been a change in spending habits brought on by price increases, particularly in rural areas. Customers now want brands to reflect their expectations in terms of social and environmental awareness.

Keeping all of these aspects in mind, companies must improve their product portfolios in the future while keeping their margins under control. The monsoon plays a significant role in determining growth in this sector. A good monsoon and stability in the commodity prices would improve consumer sentiments, even in rural regions, which will undoubtedly be beneficial for the FMCG sector.

Financial Highlights

For FY21-22 the following top players delivered robust returns.

Hindustan Unilever is the FMCG giant engaged in the business of home care, beauty and personal care, and foods and refreshment segments. It reported a 9.61% YoY growth in net sales, 8.96% YoY growth in operating profit and 11.09% YoY growth in profit after tax. ITC, the country’s largest cigarette manufacturer, also operates in five business segments including hotels, paperboards, paper and packaging and agriculture. It reported a 31.14% YoY growth in net sales, 14.49% YoY growth in operating profit and 15.65% YoY growth in profit after tax.

Nestle India, a subsidiary of Swiss MNC Nestle, operates in the food segment. It reported a 9.62% YoY growth in net sales, 10.88% YoY growth in operating profit and 3% YoY growth in profit after tax. Dabur India is another leading FMCG player dealing in consumer care and food products. It reported a 14.06% YoY growth in net sales, 13.70% YoY growth in operating profit and 2.84% YoY growth in profit after tax. Apart from these top players, some other companies also delivered a remarkable performance. Varun Beverages is a key player in the beverage industry and one of the largest franchisees of PepsiCo in the world.

It reported a 38.89% YoY growth in net sales, 37.64% YoY growth in operating profit and 108.82% YoY growth in profit after tax. Procter and Gamble Hygiene and Health Care is engaged in the manufacturing and selling of products in the feminine care and healthcare businesses. It reported a 19.06% YoY growth in net sales, 42.58% YoY growth in operating profit and 50.50% YoY growth in profit after tax. Ruchi Soya Industries Limited is engaged in the business of processing oil seeds and refining oil for edible use. It reported a 48.33% YoY growth in net sales, 53.49% YoY growth in operating profit and 18.44% YoY growth in profit after tax.