Domestic Consumer Demand Remains Stable In Q2FY25: Report

As the growth in the rural sector outpaced the urban region’s growth, the domestic consumer demand remained stable in the second quarter of the current financial year, as per a report from Sharekhan by BNP Paribas. Consumer goods revenue grew by 6 per cent year-on-year (YoY) driven by mid-single-digit volume growth, while pricing growth stood at low single-digit.

As per the report, out-of-consumption (especially for foods and beverages categories) was affected by heavy rains and flood-like situations in most parts of India. With price hikes in some categories, the pricing growth will be added to overall revenue growth in Q2, as mentioned in the report.

Key input prices have seen an uptick in the last six months. Palm oil, Copra, LLP and raw tea prices have increased by 9 per cent, 33 per cent, 18 per cent and 25 per cent, y-o-y respectively. Companies are gradually taking price hikes in the portfolio, which will not be enough to cover inflation in the input prices.

“We believe gross margins for companies under our coverage will remain lower or flat in Q2FY2025. Companies have maintained their thrust on improving volume growth in a stable demand and hence will continue to spend heavily on ad-spends/promotional offerings in the near term. Hence, the OPM of consumer goods companies is expected to be lower on a y-o-y basis. Overall, PAT growth for Sharekhan’s consumer goods universe will be lower as compared to revenue growth in Q2,” stated the report.

As far as the outlook for the sector is concerned, the report highlighted that the second half (H2) is expected to be better than the H1 as the monsoon season was above normal and well spread out, which will help agriculture production to be better in the current year. This will not only boost rural consumption but will also help agriculture inflation to stabilise in the near term.

However, global uncertainties will lead to volatility in the raw material prices and currency movement. This will put pressure on the margins of the consumer goods companies in the quarters ahead. The report stated that operating profit growth to be lower compared to revenue growth in the near term.