FMCG companies' revenue to contract by 3% in FY21: Crisil

Mumbai: Domestic ratings agency Crisil on Tuesday said it expects revenue of fast moving consumer goods sector (FMCG) companies to contract by 3 per cent in 2020-21 as against its earlier expectation of a 10 per cent growth.

However, companies will adopt lower advertising spends and benefit from lower input prices, which will ensure that operating profit levels can be broadly maintained at up to 19 per cent, it said.

It attributed the drastic revision in revenue growth to both supply and demand shocks caused by the COVID-19 pandemic, which has resulted in a three month lockdown in major consumption hubs.

Lockdowns have resulted in limited mobility and supply-chain disruptions, while the expectations of lower income for consumers have derailed sales, it said.

From an operating profit growth perspective, the number will drop marginally to 18-19 per cent in FY21 as against 20 per cent in FY20, it said, adding that other strengths like well capitalized balance sheets and limited need to add capacity will ensure that the credit profiles of the companies remain stable.

The agency said the assessment is based on 57 companies it rates, which account for half of the industry's revenues, and assumes a staggered relaxation in lockdowns from June 2020, and a gradual recovery in sales after that.

"Ice cream and beverages would see a steeper fall because of revenue loss for the major part of summer. The personal care segment (25 per cent of sector's revenue), which has the highest proportion of discretionary products, will witness the steepest decline, while the home care segment (20 per cent of sector's revenue) will be the least-affected because of its high essentials quotient and rising hygiene awareness," Crisil Senior Director Anuj Sethi said.

From a geographical perspective, rural India should fare better than urban areas because of higher proportion of essential products consumed, government doles, eased restrictions on agriculture activities, and likelihood of a normal monsoon, the agency said.

Prices of key inputs used in packaging, as well as sugar, wheat and palm oil have softened recently on lower demand, it said, adding the same will aid profits.

On marketing side, there will be lower advertising spends and discounts, and innovative use of cost efficient digital advertising, which will also help the bottomlines, it said.

The duration of the lockdown, progress and spread of monsoon and its impact on rural demand will be monitorables in the road ahead, it said.