Two months after analysts and the fast moving consumer goods industry started talking of ‘green shoots’ of revival in the rural market, the latest indicators suggest that such reports may have been a tad premature.
Going by comments from India’s largest maker of packaged consumer goods, as well as on-the-ground checks by analysts, there has been no change in consumer sentiments in the rural market in the last two months.
“Our interaction with HUL management reinforced our thesis that demand pickup will be gradual and meaningful volume recovery will not be visible in the near term. The rural trend remains stable, with no further improvement or deterioration over the last quarter,” said analysts from HDFC Securities.
For the last two years, packaged consumer goods companies such as Hindustan Unilever, Dabur and Emami have bore the brunt of a sharp slow-down in demand in their rural markets, which typically contributes about 35-40% of their revenue.
Two months ago, these companies had started talking about seeing some ‘early signs’ of a revival.
However, hopes have not borne fruit, said Antique Stock Broking, after conducting some ‘on-the-ground’ checks.
“From our latest on-ground interactions, we believe that for Aug 23 rural market demand has not witnessed any significant improvement,” the firm said in a note to clients today.
Antique Stock Broking, however, witnessed some differences in the performance segments and companies within the broader packaged goods category.
“Overall, while the rural market demand is struggling, there are some bright spots in certain categories and regions. The competition remains intense, with both organized and unorganized players vying for market share,” said the firm in its report.
For example, it found that large biscuit-focused companies like Britannia and Parle are facing headwinds due to the resurgence of regional players offering low unit packs (LUPs).
Similarly, companies such as Dabur, Britannia, and Marico are experiencing softer performance due to the current stress in the rural markets, while those that have a diversified product portfolio are doing better.
“Giant FMCG companies like Nestle, Jyothy Labs, and Godrej Consumer Products (GCPL) and HUL off-take performance continues to remain strong. ITC performance remains stable,” it pointed out.
“Based on current valuations, our preferred picks are GCPL and Jyothy Labs,” it added.
Meanwhile, in their interaction with analysts from HDFC Securities, the management of Hindustan Unilever Ltd maintained that there has been no significant pick up in terms of volumes despite recent price cuts.
“As per HUL, it takes 3 to 4 quarters between price cuts and demand upticks, thereby recovery will be more back-ended,” pointed out HDFC Securities in their note on the interaction.
“We reinforce our thesis that demand pickup will be gradual and meaningful volume recovery will not be visible in the near term,” it added.