FMCG Sector Check - Value Pack Drives Growth; Volume Recovery On The Horizon: Motilal Oswal

Motilal Oswal Report

• Fmcg is a sizable and profitable sector, with total spending of nearly Rs 5.4 trillion in the last five years and Ebitda margin of ~20%.

• Over the last 15 years (FY08-23), India's real GDP has seen a compound annual growth rate 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.

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