How did the FMCG stocks perform in the fourth quarter and what are the key takeaways from the numbers this quarter?

FMCG sector was always expected to be under pressure in the Indian context since the rural demand was slowing and the cost of inputs were rising. That was intuitively known. Now there is ratification of this belief in the form of actual data coming in from a recent survey by AC Nielsen. The key takeaway from the AC Nielsen report on FMCG companies is that in Q2FY22, FMCG companies overall have seen a spike in the overall sales. However, the truth is that this was driven by higher price realizations even as volumes came under pressure.

Some of the statistics presented by Nielsen on the FMCG space are genuinely revealing. For example, the survey says that the volumes of goods sold by the Indian FMCG companies in the fourth quarter fell by -4.1% on a yoy basis compared to Q4FY21. In the same quarter, the FMCG industry overall reported 6% increase in sales in value terms. The answer is obvious. The sales spike was triggered by aggressive price increases by large FMCGs. These are the ones that still command a lot of pricing power.

There was another interesting trend that emerged in rural versus urban demand. As a result, the volume slump as well as the price hike was the most pronounced in India’s rural markets, which is evident from the higher inflation levels in rural areas. Consider these numbers. The rural and semi-urban markets reported a -5.3% dip in volumes; the sharpest in last 3 quarters. However, the fall in volumes was just -3.2% in urban markets. Hence the reported value growth was 6.6% for rural customers and 5.6% for urban customers.

There were some product like non-food categories which were down -9.6% in volumes in Q4FY22. The story seems to be that where there is an element of discretionary consumption, buyers are looking to postpone decisions. At the same time, the price hikes were most prominent in the food items like refined oil, packaged atta etc. That is more because, the demand for these products is generally inelastic. In short, non-food discretionary spending is being cut and cut sharply.