Consumer Sector's Price Benefit Fading, Volumes Weak, Says BNP Paribas' Kunal Vora

Price benefit is fading for Large consumer goods makers and their volumes are weak as they face competition from regional players, according to BNP Paribas' Kunal Vora.

"Over the last few quarters, revenue growth for the sector has been coming off," Vora, Head of India Equity Research at BNP Paribas, told BQ Prime's Sajeet Manghat in an interview.

The consumer sector has grown 8% in the last decade, he said. "The growth rate briefly jumped to double digits during the high inflation period, but as the inflation moderated in the last few quarters, the growth has started coming off."

While the slowdown in revenue growth was countered by an expansion in margins as input costs were coming down, it may not continue to sustain itself, he said. "That tailwind also seems to be going away as crude has started inching up. Raw material inflation, like in palm oil, is also making a comeback, even though it isn't a big worry yet," he said.

The volumes, he stated, are not recovering "significantly" because of a price increase of 30–40% in several categories that aren't reversing.

The edible oil segment has already seen price cuts as raw material costs have cooled. As the pricing keeps getting adjusted in line with raw material costs, there is no room for "super normal margins."

BNP Paribas, Vora underscored, remains underweight on the Indian FMCG sector, citing "rich" valuations compared to single- or low-double-digit revenue and margin growth.

"Our estimates for most companies are below consensus (estimates). We expect high single-digit and not double-digit (growth rates.)," he said.