New Delhi: Consumer packaged goods companies expect sales to revive in the March quarter after a government decision to outlaw high-value banknotes in November and the ensuing cash scarcity crimped sales.
Company executives cited increased stocking by wholesale traders by way of evidence. This, they said, indicated better demand from retailers and, in turn, from consumers.
“We believe the consumer staples sector should see better days ahead because most companies in their conference calls have highlighted that the wholesalers are slowly getting back to business,” said Sunita Sachdev, an analyst with UBS Securities India Pvt Ltd.
Most consumer companies are optimistic about sales growth in the March quarter as the economy returns to normal after the shock clampdown on cash.
Hindustan Unilever Ltd, which reported a 4% decline in sales volume for the quarter ended 31 December, said things were looking better for the country’s largest consumer packaged goods maker and that it expects a gradual recovery.
Many of these companies have already taken steps to overcome the effects of the cash crunch.
Dabur India Ltd, for example, has stepped up its direct distribution to retailers to try and cushion the impact of demonetization.
The effect of demonetization has receded significantly in February, said Kannan Sitaram, operating partner at private equity firm India Equity Partners. “That should make a big difference for companies in this quarter (January-March). Secondly, the harvest is good. So there is more money in the hands of people in rural markets. Thirdly, the trade channels, especially wholesale, had run dry during demonetization. Now there is more cash in wholesale, which is 30-40% of the business,” said Sitaram. “Overall, there is enough to boost the consumer economy going forward.”
Nestle India Ltd, which reported an 8.66% drop in profit for the quarter ended 31 December on Wednesday, is also expected to report a better January-March quarter. The company, in keeping with its practice, declined to give any forward-looking statement. Executives, on condition of anonymity, said they are seeing better stocking in the trading supply chain. The company is looking at a “much better quarter”, they said.
Nestle India said its profits fell as domestic sales were “impacted by the withdrawal of high denomination currency notes in circulation” and as its tax expenses doubled.
Nestle India’s net profit for the quarter ended December fell to Rs167.31 crore. Sales rose 16.2% to Rs2,261.28 crore from the year-ago quarter. For the full year, Nestle India reported a 12.8% increase in net sales at Rs9,159.28 crore.