High sales by FMCG firms indicate growth in consumer demand
The increase indicates the possible end of the lingering effects of last year’s demonetisation and the fallout of the move to a Goods and Services Tax regime in July.business Updated: Nov 03, 2017 09:15 IST
A surprise increase in sales volumes of consumer packaged goods companies has boosted hopes of a recovery in consumption demand, indicating the possible end of the lingering effects of last year’s demonetisation and the fallout of the move to a Goods and Services Tax regime in July.
Hindustan Unilever Ltd, India’s largest consumer packaged goods maker, reported a 4% volume growth in the three months to September compared to flat growth in the previous quarter.
Dabur India, reported a 7.2% volume growth in the September quarter for its domestic business as compared to a 4.4% decline the previous quarter. Marico saw volume growth of 8% in the September quarter compared to a 9% decline the previous quarter.
While the revival has been led by growth in urban markets, even rural markets are showing the green shoots of a gradual recovery. Indeed, across the board from consumer packaged goods to consumer durables, the statements of companies reflect a slightly more optimistic outlook than before.
“Urban demand has been steady; rural has grown a shade faster than urban,” said Vivek Gambhir, managing director and chief executive officer, Godrej Consumer products Ltd, the maker of Cinthol soaps and Hit insecticides. Godrej reported a surprise 10% growth in volumes.
In the last 12 months, the rural business suffered more despite a second straight year of good rains.
The cash crunch was far more acute for the rural consumer after the invalidation of high value notes last November.
Then in the run up to the implementation of GST, the cash dependent wholesale channel started to run down inventory impacting supplies to the interiors of the country. Close to 70-80% of rural market is serviced by the wholesale channel.
Still, rural consumption is also gradually recovering.
“Some sectors in consumption are doing well and some are not. Staples is a mixed bag and consumer durables is still picking up,” said Ashutosh Datar, vice president at IIFL Institutional Equities .
“We are seeing clear signs of revival,” said Anand Mour, a research analyst at ICICI Securities Ltd.
According to Mour, the normal monsoon, increased government spending and increase in the minimum support prices of crops besides wholesale channel stabilisation will further aid in the pickup of demand in rural India in the coming quarters.
Experts cite two reasons for the growth. One, firms had run down inventory in the run up to GST. So, restocking has played a role. Second, Diwali, which usually sees a spike in sales came almost 15 days early this year. They add that growth in the December quarter growth will be high anyway because of the low base of a year ago due to the invalidation of high value notes.
It would be prudent to wait before calling a full-fledged recovery, according to Chandru Kalro, managing director, TTK Prestige, the maker of cookware and stoves.