Fast-moving consumer goods (FMCG) firms are cautiously optimistic about a demand revival within the next two quarters on the back of government initiatives, despite continued headwinds from the liquidity crisis, FMCG executives said.
Most FMCG firms in India have been grappling with weak volume growth since the beginning of the year, primarily due to a slump in rural demand.
The slowdown intensified when companies faced a liquidity crunch following the crisis in the non-banking financial sector and rising unemployment.
“After 8-10 years of growth, this is the first time we are seeing a slowdown. It will take a couple of quarters to see some good traction. The government’s initiatives like corporate tax cuts, infusion of money into banks, etc., should start having some positive impact. But it is still early days," said Rajat Wahi, partner, Deloitte India.
Consumer spending fell for the first time in more than four decades in 2017-18, mainly in rural India, said a 15 November report in Business Standard newspaper, which quoted National Statistical Office (NSO) data.
As per the report, household consumer expenditure in India—the average amount spent by a person every month— declined 3.7% from ₹1,501 in 2011-12 to ₹1,446 in 2017-18.
To be sure, the government has on Friday junked the Consumer Expenditure Survey citing data quality issues.
According to a September Credit Suisse report, FMCG firms are likely to post the worst revenue growth this fiscal year as compared to the last 15 years, as the slowdown in the sector intensifies due to lower farm incomes, liquidity crunch, and rising unemployment. Executives of fast-moving consumer goods firms agreed that the next two quarters may see some revival in consumption demand as government initiatives start showing results.
“We saw a better October this year as compared to the previous year, which makes me believe that a revival is in sight. But this could be mainly because of Diwali. So, it would be critical to look at the November data and take a call on whether we are seeing a revival in consumer demand," said Mayank Shah, category head, Parle Products.
Shah said Parle’s biscuit sales had dipped to 5-6% growth in the initial months of this year.
In 2018, biscuit sales of the company grew by 8-10%. “This year we had concerns on growth ...but this month we saw 9%, which is heartening. This, to my mind, is a sign of revival, provided it continues," he added.
“Demand is still slow on ground. Liquidity issue has not improved much. Headwinds continue to be strong. The government’s initiatives are yet to see result. So, it will take a couple of more quarters for demand to come back," said Vivek Karve, chief financial offer, Marico Ltd.
Sanjiv Mehta, chairman and managing director, HUL Ltd, had said during the post-September quarter earnings call, that the near-term outlook for rural demand is likely to remain challenging. “However, we hope rural demand to pick up sooner than later."
There are two important elements for a demand pick-up. One is more money in the hands of the people and the other is improvement in consumer confidence. Consumer confidence spurs growth in FMCG consumption, Mehta said.
HUL had posted a flat 5% volume growth in the September quarter. In the previous three-month period, it had recorded a seven-quarter low volume sales.