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Revenue of FMCG companies to contract by 3% in 2020-21: Crisil
Jun-03-2020

Domestic ratings agency Crisil has said it expects fast moving consumer goods sector (FMCG) companies’ revenue to contract by 3% in 2020-21 as against its earlier expectation of a 10% growth. However, it said 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%. 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.

The agency said lockdowns have resulted in limited mobility and supply-chain disruptions, while the expectations of lower income for consumers have derailed sales. It also said from an operating profit growth perspective, the number will drop marginally to 18-19% in FY21 as against 20% in FY20, and added 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. It 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.

Crisil said ice cream and beverages would see a steeper fall because of revenue loss for the major part of summer. The personal care segment (25% of sector's revenue), which has the highest proportion of discretionary products, will witness the steepest decline, while the home care segment (20% of sector's revenue) will be the least-affected because of its high essentials quotient and rising hygiene awareness. From a geographical perspective, it said 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.

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