Not fast and furious, it's a slow turn for consumer companies

MUMBAI | NEW DELHI: Leading consumer goods companies expect lower volume growth even in April-June quarter, blaming it on high base and rural distress that could recover only after a good monsoon and increased farm income. Volume sales show the number of products that consumers put in the shopping basket, indicating actual demand.The first quarter of FY18 saw most companies post double digit volume growth thanks to a favourable base, which was a result of goods and services tax introduced in 2017, and also improving consumer sentiment, especially in rural India.Hindustan Unilever hit a six-year high in terms of volume growth, while Dabur and Marico grew the most in over five years. But the Jan-March quarter almost all large consumer goods companies saw volume and sales growth sawed off on account of slowing sales in urban wholesale channels, but primarily reflecting subdued rural sales.“While there is no major demand disruption, outlook for the sector remains muted and moderate. An uptick is expected second quarter onwards, assuming the monsoon is good,” said Sunil Duggal, non-executive director at Dabur. “Consumers seem to be putting off purchases because of low liquidity in the market,” added Duggal, the former chief executive of Dabur.69780919 Consumption in rural India, which accounts for about a third of the market, has been under stress over the past three quarters even though its rate of expansion is faster than cities. Over the past two years, rural growth rates were nearly double those in urban areas, which moderated to about 1.1 times last quarter.“We expect softness to continue in FY20,” Sanjiv Mehta, chairman of Hindustan Unilever told analysts last week. The local unit of the Anglo-Dutch company, for long considered a good proxy to gauge consumer sentiment across the socio-economic spectrum, however, said the government’s focus is on growth and in a few quarters, one should see the benefits of the initiatives taken.At last month’s cabinet meeting, the first in PM Narendra Modi’s second term, the government said it will cover 14.5 crore farmers under the PM Kisan scheme, and irrespective of their land holdings, will transfer ?6,000 to their bank accounts. The revised scheme will cover 2 crore additional farmers, With a stable government in place, there would be strong focus on capital spending, and robust incentives to uplift farm income and job creation will quicken consumption growth in rural India, marketers said.“Demand pressure will likely persist until July-September quarter as there is a liquidity issue in the overall system. A stable government and prediction of a normal monsoon will definitely help rural sentiment, but it will take few months to translate into actual demand or sales,” said Krishna Rao, marketing head of the country’s second largest biscuits maker, Parle Products.The Indian Met Department has predicted a normal June-September monsoon, while private weather forecasting agency Skymet forecast a below-normal monsoon at 93% of the long period average.“Both rural demand and higher farm income due to normal monsoon are catalysts for growth. In the medium term, we expect steady demand when these two factors come along,” said Vivek Karve, chief financial officer of Marico.In a report released in April this year, researcher Nielsen forecast earlier that the fast moving consumer goods sector would grow 11-12% in 2019 on account of subdued rural sales, a downward revision from its previous forecast of 13-14%. “While a slight drop is witnessed in urban growth, there is a significant softening of growth trends in rural, which is dampening the overall FMCG industry growth from Q3’18 to Q1’19. Historically, rural has grown 3-5% points faster than urban and the recent slowdown in rural growth also brings the growth closer to the urban growth," Nielsen said in its report.However, some companies, especially in the beverages segment, said this summer was the the best in three years due to heatwave across the nation and stable prices.“The April-June quarter has been very good for us and we have seen 22-23% y-o-y growth. The last two-three years, there has not been much increase in prices so consumption has gone up,” said RS Sodhi, MD at GCMMF, maker of dairy brand Amul.ET had earlier reported that cola makers’ business grew 10-15% between March to May, driven to a large extent by low and no-sugar variants on a smaller base compared to the larger core business, prompting companies to step up production in peak season.

from Economic Times http://bit.ly/2WF8tPr