Even as the economic slowdown seems to be taking deep root, manufacturing shows a different story. In the past few months, a slew of companies including Britannia, Nestle and PepsiCo have drawn out plans to set up manufacturing units worth hundreds of crores in India.
While Britannia is looking to enhance its presence in the eastern and north-eastern markets by expanding its manufacturing units in either Bihar or West Bengal, maggi-maker Nestle said it will ramp up its production capacity by setting up a new factory in Gujarat entailing an investment of nearly Rs 700 crore.
Beverage firm PepsiCo also plans to invest to set up a food manufacturing unit in Uttar Pradesh. “To set up our third unit of greenfield food manufacturing plant, we will invest Rs 500 crore,” said PepsiCo India president and CEO Ahmed El Sheikh.
El Sheikh further said that this will generate 1,500 jobs in the state.
“We will also expand our supply chain. We require 7,00,000 tonne of potatoes,” he said, adding that the company aims to double its business in the country by 2022.
Moreover, the Centre has slashed effective corporate tax to a new low of 25.17 per cent provided they will not avail exemptions or incentives, in the hope of encouraging investments, in contrast to the 2008-09 fiscal package that was aimed at increasing spending and boosting consumption.
With more money in their kitty, ploughed from the tax cut, these companies are likely to now turn aggressive with their plans of building new factories and expanding operating assets instead of immediately slashing sticker prices of products.
But, then only if firms chose to go ahead with their investment plans before the demand stabilises.
“We are setting up a second plant in Bihar, which should be commissioned in a year and a half... Next likely stop is Kharagpur, but it may take at least a year, if at all that location is final,” said Varun Berry, managing director, Britannia, adding that the proposed facility in the east will make biscuits and “adjacent categories” and likely need a capital expenditure of around `150 crore.
According to Abneesh Roy, senior vice president, research and institutional equities, Edelweiss, companies typically plans for the future as the ongoing slowdown is temporary and is not here to stay.
“When the GST rate cut happened in consumer goods, there was a demand spurt. While the environment is different now, this notional saving or propensity to spur demand for consumer goods is likely,” he added.
Most companies plan to launch new products, attractive offers and significant promotional activities, hoping that the festive season will reverse the demand slump.
Pinning hopes on festival season
Most fast-moving consumer goods companies said they plan to launch new products, attractive offers and significant promotional activities, hoping that the festive season (September-December period) will reverse the demand slump.