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FMCG sector expected to grow robustly this year

The country's biggest FMCG company, Hindustan Unilever, has reported a stellar performance in the third quarter of the 2017-18 fiscal.

The country's biggest FMCG company, Hindustan Unilever, has reported a stellar performance in the third quarter of the 2017-18 fiscal. The company's net profit grew by 28% from Rs 1,038 crore in the same quarter last year to Rs 1,326 crore. The company's revenue grew from Rs 7,512 crore to Rs 8,590 crore year on year.

HUL's performance has been in line with the analyst community's prediction of 2018 being a year of spectacular growth for FMCG companies after years of flat growth. ICICI Securities, in a recent report predicts the FMCG industry to report an aggregate growth of 14.8% in the third quarter, as opposed to a 5.2% growth in quarter two of FY18 and 1.5% in the first quarter. The obvious reason for this growth is the reduction of prices in several categories post GST, which has resulted in higher consumption. The rural consumers have started consuming too, and this is not just because of two consecutive years of good monsoons and higher wages, but also due to the fact that all FMCG companies have started investing huge amounts on direct distribution. A company like Britannia Industries for instance, has increased its rural distribution from a few thousand stores to 13,200 stores.

Most FMCG companies relied heavily on the wholesale network to reach out to rural and semi-urban markets, and the wholesale network which largely depended on cash transactions were completely wiped off post demonetization. The larger national brands are much more visible on the shop shelves of kirana stores in smaller towns and in rural markets than they were ever before. "We believe the companies that enjoy stronger direct distribution network and have higher rural salience are expected to benefit going ahead with recovery in rural demand," says the ICICI Securities report.

While the larger FMCG companies are expected to grow robustly, is this growth coming at the expense of the smaller regional FMCG brands? The shop shelves surely seem to favour the bigger brands. This trend is not just restricted to the FMCG sector, but also to consumer durables, where local TV brands have made way for the national brands. The consumption space will surely see immense action this year.