These Three FMCG Companies To Benefit Once Rural Recovery Picks Up

FMCG companies are set to gain amid a recovery in rural demand, according to Preeyam Tolia, senior analyst-FMCG at Axis Securities Ltd. and he outlined three factors that will drive growth for top players in the sector.

According to him, Nestle India, Varun Beverages and Jyothy Labs that were Axis Securities' top picks in a recent report, are poised to gain from expansion in their distribution reach in rural India.

“What we believe is that once the rural recovery picks up, these three companies are likely to benefit more than companies with already higher distribution,” Tolia said.

The analyst added that product launches will also contribute to the growth of these companies in the remaining quarters of FY25. “Nestle, especially, continues to drive premiumisation through new product launches. Varun Beverages and Jyothy Labs are also likely to benefit from new product launches,” he noted.

Thirdly, the geographical expansion will also propel growth for these FMCG players, said Tolia.

“Varun Beverages is expanding its operations in the African market while Jyothy Labs traditionally has been present in the south and east but now they are expanding their reach in northern and western markets in India,” he added.

The FMCG sector is also likely to see a blip in the short term, and this is the time for investors to get into the sector, Tolia advised, while outlining a positive trend in the coming quarters due to rural recovery.

He said that factors like a stable macroeconomic environment, controlled inflation, and normal monsoon will also help in volume growth recovery in rural areas for the FMCG players.

However, Tolia said that FMCG companies will remain overvalued for a while now. According to him, FMCG companies will continue to be available at higher valuations till they grow their net profit and deliver on the returns ratio.