FMCG Sector: Growth Returns, But Challenges Remain

In our last update on the FMCG sector in June 2024, we highlighted that revenue growth remained weak despite a recovery in rural demand, which was outpacing urban demand. We had also noted that the scope for PE multiple expansion appeared limited, and that future returns would likely need to be driven primarily by earnings growth.

In this report, we revisit how the sector has evolved since then, while also taking a closer look at the latest quarterly results and the outlook. We analyse a representative sample of seven leading companies by market value spanning a broad range of categories.

Since our previous update, the Nifty 50 Index has delivered a CAGR of 3.31%, while the Nifty FMCG Index has underperformed, posting a negative CAGR of 3.75%. The median CAGR of the seven FMCG stocks covered in this report stands at negative 1.5%.

PE multiples for players with low PAT growth have either contracted or remained range-bound over the past two years. The two outliers were Nestle India and Marico, which have seen their PE multiples expand over the period. While Marico’s returns were driven by consistent revenue and PAT growth over the two-year period, the recent rerating in Nestle India has been led by its strong Q4 performance.

Most companies reported high single-digit to double-digit revenue growth in Q4, driven by healthy volume-led demand across both urban and rural markets. Consumption was further supported by income tax relief measures and GST reductions on several FMCG staples. Quick commerce and e-commerce also emerged as key growth engines, particularly for premium and urban-focused product portfolios. Marico’s outlier revenue growth in FY26 was largely driven by a sharp increase in copra prices, which rose 57% YoY, although this inflationary pressure weighed on margins.

Companies indicated that growth was primarily driven by underlying volume growth, suggesting that the recovery was supported by improvement in consumer demand rather than price hikes alone.

We will now take a deeper dive into each segment to better understand the underlying drivers of growth.

#1 Home care

Home care emerged as the best-performing segment across companies in the sector, led by strong execution and healthy category momentum. 

• Hindustan Unilever (HUL) reported 9% value growth, its strongest performance in the last 11 quarters, along with high single-digit volume growth. Growth was primarily driven by double-digit expansion in the fabric wash category, with the liquids portfolio crossing Rs. 4,000 crore in annual revenue. 
• Godrej Consumer (GCPL) delivered 12% growth in its standalone Home Care segment, driven by sustained momentum across fabric care, air fresheners, and insecticides.
• Dabur posted a robust 24% growth in the Home Care segment, supported by strong double-digit growth and market share gains across key brands such as Odonil (20% growth), Odomos (48% growth), and Sanifresh (>20% growth).

Notably, home care emerged as the fastest growing segment across companies despite categories such as liquid and powdered detergents (excluding laundry soaps), insecticides, and air fresheners continuing to attract the higher 18% GST slab and therefore not benefiting from GST rationalization. This indicates that growth was largely volume and demand-driven rather than tax-led.

The personal care segment delivered a relatively muted quarter across most companies, with growth largely driven by premiumization and selective category outperformance.

• HUL continues to focus on premiumization within its Personal Care portfolio, as reflected in the 5% sales growth despite a low single-digit decline in volumes driven by high single-digit growth in the skin cleansing segment. The Beauty & Wellbeing segment reported 8% value growth and mid-single-digit volume growth, supported by volume-led performance in hair care and premium skincare, while the mass skincare portfolio remained subdued. 
• GCPL reported a muted 3% growth in its Personal Care segment, largely due to the high contribution of soaps, which remains a structurally slow-growing category despite the benefits from GST rationalization. Growth in other categories such as sexual wellness and hair colour also remained subdued during the quarter.
• Dabur reported strong growth across its Personal Care portfolio, with the hair oil segment growing 28%, driven by robust performance in perfumed oils, coconut oils, and shampoos. Oral Care registered 7.2% growth, while the Skin Care portfolio delivered low double-digit growth led by the Gulabari franchise and OxyLife range.
• Marico delivered over 25% value growth in both Parachute Coconut Oil and Value-Added Hair Oils, driven by price hikes implemented to offset elevated copra prices. Despite copra inflation persisting since Q3 FY25, volumes have remained relatively resilient, staying broadly flat to registering only low single-digit declines.

Foods and beverages continued to witness healthy demand trends during the quarter, with most companies reporting broad-based, volume-led growth across categories.

• HUL delivered 5% sales growth and high single-digit volume growth in its Foods portfolio, driven by strong performance in Horlicks, Boost, and packaged foods such as ketchup and mayonnaise.
• Nestle India reported strong double-digit, volume-led growth across all its product categories.
• Britannia delivered 6.5% revenue growth along with 5.5% volume growth. While sales growth stood at 9% during the first two months of the quarter, momentum moderated in March due to supply disruptions in the International Business following the West Asia conflict.
• Marico registered 16% YoY growth in its Foods portfolio and exited the year with revenues exceeding Rs. 1,000 crore, led by strong double-digit growth in the Saffola Foods portfolio.
• Tata Consumer reported 18% revenue growth, with broad-based momentum across tea, coffee, salt, Tata Sampann, ready-to-drink beverages, and Organic India.

The growth witnessed across segments is underpinned by a broader set of strategic initiatives aimed at expanding addressable markets and accelerating portfolio growth.

FMCG staples companies, operating in relatively mature and slow-growing categories, have increasingly pursued inorganic opportunities across adjacent segments such as beauty, personal care and food to drive growth. These acquisitions, together with other growth initiatives, are emerging as key contributors to portfolio growth. 

• Tata Consumer’s Growth Businesses portfolio, including Sampann, Capital Foods (owner of ‘Ching’s Secret’ and ‘Smith & Jones’ brands), Organic India, and Ready-to-Drink products, crossed the Rs. 4,000 crore revenue milestone (20% of FY26 revenues). The segment grew 24% during FY26 and now contributes around 30% of the India business. Management expects this portfolio to sustain a growth rate of approximately 30%.
• Marico’s Foods business (including Saffola Foods and True Elements) crossed Rs. 1,000 crore in revenue during FY26, while its digital-first premium personal care portfolio (including Beardo and Plix) achieved an exit ARR of over Rs. 1,100 crore. The company has further strengthened these growth engines through recent acquisitions, including Cosmix and 4700BC in Foods, and Skinetiq in Vietnam under its Beauty portfolio. The combined contribution of Foods and Premium Personal Care has increased from 11% of the India business in FY20 to 23% in FY26. Management expects this share to reach 33% by FY30, reducing the company’s dependence on commodity-linked categories.
• HUL has scaled the ARR of Minimalist from Rs. 500 crore in December 2024 to Rs. 850 crore. Its premium beauty and wellness portfolio, comprising Minimalist, Simple, OZiva, and Nexus, now operates at a combined ARR of nearly Rs. 1,400 crore.
• Godrej Consumer has classified its portfolio into ‘Mothership’ (80%) and ‘Speedboats’ (20%), with the latter comprising emerging categories such as Godrej Fab (liquid laundry), Goodknight Agarbatti, and Godrej Aer (air freshner). The Speedboats portfolio has delivered a CAGR of over 30% over the past three years, and its share is expected to increase from 15% in FY26 to 40% by FY30. 

Companies are increasingly moving beyond a single distribution model, strengthening traditional channels while rapidly scaling digital platforms. For instance, Marico is expanding its direct rural reach through Project SETU, while Tata Consumer has completed the rollout of a new go-to-market model designed to drive stronger penetration of its growth businesses in tea and salt dominant markets. HUL also expanded its direct distribution network by adding 200,000 outlets during the year.

At the same time, quick commerce is becoming a material contributor to overall sales. Tata Consumer’s e-commerce and quick commerce contribution increased from 9% of India business in FY23 to 19% in FY26. Similarly, Dabur witnessed quick commerce salience within its e-commerce channel rise from 50% in Q3 to 75% in Q4.

Beyond being a sales channel, quick commerce is also evolving into a product incubation platform. Companies such as Tata Consumer and HUL are leveraging quick commerce to conduct rapid product tests in select cities before scaling launches across modern trade and general trade channels, enabling faster consumer feedback and reducing the risk of inventory build-up within distributor networks.

While rural demand continued to outpace urban markets, companies highlighted a narrowing of the gap between the two. For instance, Dabur reported rural growth of 11.4% compared to urban growth of 8%, with the differential compressing from 500 bps to 340 bps sequentially. Similarly, HUL noted that demand conditions have stabilized, with rural and urban growth trends now becoming increasingly aligned, indicating a more broad-based recovery in consumption across markets.

Margins: Temporary breather 

Companies were able to maintain their gross margin largely in line during the quarter. The graph below shows how gross margins have trended over the past few quarters. 

Input cost trends remained largely favourable during the quarter. Tata Consumer benefitted from lower tea and coffee prices. Copra prices, while higher than last year, have corrected by nearly 35% from its peak levels. Marico was able to selectively pass on price increases, limiting the impact on profitability, though gross margins moderated. HUL continued to operate within its guided EBITDA margin range of 22.5–23.5% and reiterated this guidance.

While Q4 margins were broadly in line with expectations, the outlook warrants caution given the recent rise in crude oil prices following the conflict in West Asia. Higher crude prices are likely to increase packaging material costs across the FMCG sector. Godrej Consumer and HUL are likely to be more exposed to crude price inflation, given their reliance on crude derivatives in detergents (HUL and GCPL) and insecticides (GCPL). In addition, unseasonal rains during April have delayed wheat harvesting and affected both crop quality and yields, posing a potential cost risk for companies such as Britannia and Nestle India.

A sustained increase in crude oil prices could also have an indirect impact on palm oil prices. Higher crude prices improve the economics of biodiesel production, potentially diverting a greater share of palm oil, primarily sourced from Indonesia and Malaysia, towards domestic biodiesel consumption rather than food and export markets. This could tighten supply and lead to higher palm oil prices, adversely affecting companies with significant exposure to soap and foods portfolio.

When it comes to EBITDA margins, companies were largely able to maintain it during the quarter. The notable positive outlier was Nestle India, whose margins improved sequentially on account of lower employee and other operating expenses. Dabur’s margins, while lower sequentially due to seasonal factors, remained broadly in line with the corresponding quarter last year.

Outlook & Valuations

FY26 witnessed strong volume-led demand growth, supported by GST cuts and improving consumption trends across both urban and rural markets. However, the growth outlook for FY27 appears more challenging.

According to CRISIL, the organised FMCG sector is expected to deliver revenue growth of 8–10% in FY27, driven primarily by price-led growth, with realisations expected to increase by 6–7% while volume growth moderates to 2–3%, compared to 5–6% in FY26. The slowdown in volume growth reflects the likelihood of inflationary pressures weighing on consumer demand across both urban and rural markets.

Additionally, expectations of a Super El Niño, below-normal rainfall forecasts, and the risk of higher commodity and fuel prices arising from the West Asia conflict could further pressure consumption. Rural demand, in particular, remains vulnerable, as any adverse impact on agricultural output and farm incomes could weaken purchasing power and dampen demand growth.

While valuations across the FMCG sector have moderated over the past two years, they continue to remain elevated relative to the growth expectations of these companies. Compared with other consumption plays, and even several sectors outside consumption, FMCG companies still trade at a premium despite their relatively modest growth outlook.

One clear trend emerging across the sector is that companies can no longer rely solely on their legacy portfolios to drive growth. To deliver respectable growth rates and justify current valuations, they need to actively fill portfolio gaps, pursue strategic acquisitions, and adapt to evolving channels like quick commerce.

At present, there is a noticeable divergence among players. Only few companies have successfully executed on these fronts and translated their efforts into superior growth. However, this playbook is likely to become essential for the entire sector. Companies that proactively expand their portfolios, embrace new channels, and stay ahead of changing consumer preferences will be better positioned to regain their growth credentials and sustain or enhance its valuation premium.

The securities quoted are for illustration purposes only and are not recommendatory.