Volume Growth in Consumer Companies to Recover in FY25

Chennai: Consumer companies are likely to see a recovery in volume growth in FY25 as private consumption picks up with better rural growth. The overall consumption growth in FY24 was mostly price-led and inflationary. The 9MFY24 results of large consumer players showed nil to lower single-digit volume growth. This was partly due to subdued rural growth, which is more volume focused.

A few consumer companies showed single digit volume growth in 4QFY24. India Ratings expects overall volumes to recover gradually in FY25, led by the rural segment as the staples pack is more rural or mass market focused and the weakness in real wage growth may still be fresh in consumer’s mindset.

Consumption growth had plummeted to 4 per cent in FY24 against 6.8 per cent in FY23. FY24 consumption growth was lowest since FY03, due to the weak rural demand. A rise in private consumption is likely in FY25, led by a volume-led recovery in rural demand. While growth rates would remain polarised with premium products and services showing higher growth rates than the value segment, the growth disparity would moderate in FY25.

After a weak FY24, the recovery in rural demand in FY25 would be led by the expectations of a normal monsoon and moderating inflation, which would support volume growth in the staples categories like food, home care and personal care.

Over FY20-FY23, the discretionary segment has outperformed the staples category, as discretionary is more urban focused, which had better growth dynamics in the past than rural, and due to unorganised to organised shift. These include consumer durables, jewellery, paints and quick service restaurants.

Segments such as quick service restaurants and jewellery have shown robust growth backed by store expansion and strong underlying demand trends. However, the growth rates were broadly converging across both the categories in 9MFY24. The growth differential between staples and discretionary may come further down, given that the rural market is likely to recover, while the urban market growth may continue to moderate.