FMCG sector takes a hit as rural demand fizzles out

Both Godrej Consumer Products Limited and Marico have indicated that the demand scenario continues to be challenging in their respective quarterly updates.

Published: 11th July 2019 10:12 AM  |   Last Updated: 11th July 2019 10:12 AM   |  A+A-

By Express News Service

NEW DELHI:  The Fast-Moving Consumer Goods (FMCG) sector is unlikely to show any disparate sign of growth. Factors such as low farm incomes, tight liquidity and weak consumer sentiments have already resulted in dented demand in the fourth quarter of FY19. Demand worries will continue to be a major overhang for consumer staples firms, said analysts, envisaging the sector to turn in single-digit volume growth for the just-concluded June quarter.

“The rural stress continues with growth now at par with urban growth. The slowdown is prevalent across categories with exceptions like summer products such as juices, and ice creams.  Companies are expected to deliver around nine per cent on year revenue/EBITDA growth in Q1 as compared to 15-18 per cent reported in the same period last fiscal,” pointed out brokerage HDFC Securities in a consumer staples earnings preview.

Both Godrej Consumer Products Limited and Marico have indicated that the demand scenario continues to be challenging in their respective quarterly updates. “During the quarter, we witnessed relatively softer demand across some of our geographies of operations. Demand continued to be challenging, impacted by a general consumption slowdown. Despite sluggish demand conditions, we recorded volume growth of close to mid-single digit,” said Godrej Consumer in an exchange filing.

Marico said the quarter was characterised by moderation in the overall demand environment and the progress of the monsoon after its late onset, recovery in liquidity conditions and execution of government schemes announced will be keenly watched for signs of a revival in consumption trends.

Consumption in rural India, which accounts for about a third of the market, has been under stress over the past three quarters with rural growth multiplier to urban growth coming down to 1x from 1.3x in Q3 FY19, brokerage firm Jefferies noted, adding that urban demand trends, however, have been largely stable.

Jefferies has pegged volume growth for companies such as Hindustan Unilever and Dabur at five per cent and four per cent respectively for Q1 FY 2019-20. However, it expects Emami to report low to mid-single digit growth. Tobacco to consumer goods major ITC Ltd. is expected to post nine per cent growth in sales.

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