FMCG firms likely to see volume growth, more investor interest in FY25

Bengaluru: FMCG companies are likely to find many takers in the current market situation as volume growth is expected to improve with a likely good monsoon.

According to Nuvama Institutional Equities, volume growth will be supplemented by more expenditure by the next government on consumption themes.

“Good monsoon means rural recovery will improve, hence aiding volume growth (of FMCG firms). New government is likely to be more consumption focussed than earlier when it was more capex/infra focussed,” Abneesh Roy, Executive Director at Nuvama Institutional Equities said. “Pricing growth for consumer companies is likely to come back in FY25 which was negative in FY24,” he said.

Consumer companies have seen tepid growth last year as rural consumption was tepid last year owing to poor monsoon in several regions of the country. However, the met department has predicted a normal monsoon this year, raising hopes of a rural recovery.

“Valuations are reasonable for the sector, especially for Dabur, HUL, Britannia, Marico, Asian Paints. Raw materials are benign, so there is no major worry on margins. We expect underweight stance on sector by many investors to gradually reverse,” the brokerage firm wrote. “We are positive on entire sector due to above reasons and would recommend a basket approach,” it added.

According to the brokerage firm, pricing power of FMCG firms has improved in the recent quarters, which will improve further in the current financial year.

Even competition from local players is likely to be less for established FMCG firms. “Competition from Local players will be less due to proactive steps by larger companies and anniverserisation,” the brokerage firm said.