Rural demand for packaged goods remains weak in December quarter

New Delhi: Packaged consumer goods such as soaps, detergents, and snacks saw tepid demand in rural India in the December quarter, triggering concerns over FMCG sales volumes, according to industry analysts.

Volume growth in rural markets is likely to be either flat or may see a minor dip year-on-year, lagging volumes in urban markets, they said.

“Although moderating inflation in diesel and fertilizer costs augurs well for the rural segment, we forecast volume growth for most players shall remain challenging in Q3FY24 and possibly even Q4FY24,” Abneesh Roy of Nuvama Institutional Equities said in a report on Tuesday.

Weaker-than-expected winter and festive demand, rainfall deficit and unseasonal rains hit growth in rural India in Q3FY24 and possibly Q4FY24. “This led to muted volume growth for most players in Q3FY24. The last five to six quarters have been the longest periods of rural slowdown in the last decade,” Roy said.

In the September quarter, rural markets reported a 6.4% rise in quarterly volumes after a decline a year ago. FMCG volumes in urban markets rose 10.2% year-on-year, according to data released by NIQ (NielsenIQ) in November.

The last five to six quarters have been the longest period of rural slowdown in the last decade. As a result, companies are pinning hopes on an uptick in rural demand.

In a report released Wednesday, analysts at Jefferies said rural trends remain weak even in the December quarter with companies not expecting a meaningful pick up in the near term.

“A widely anticipated rural recovery remained elusive in CY23 despite a low base, which was a key disappointment. This coupled with waning product price hike (including grammage increases) resulted in a muted revenue growth in recent quarters,” they said.

Volatile monsoon trends and a jump in food prices worsened pressures, impacting consumer sentiment. “Meanwhile, the year did bring relief on raw material inflation which drove up gross and Ebitda margins,” Jefferies analysts said.

The performance of large consumer goods makers such as Hindustan Unilever, Dab-ur India, and ITC in the December qua-rter will be seen as a proxy for broader consumer sentiment in India.

Companies expect the upcoming general elections and a further reduction in inflation to shore up demand in FY25, analysts said.

“Upcoming union budget on 1 February may spring some surprise given this is an election year. An undemanding base coupled with continued momentum in construction activity and taming inflation should support consumption, particularly rural and bottom of the pyramid, through the course of the year,” analysts at Jefferies said.

On Thursday consumer goods company Dabur India said December quarter witnessed sequential improvement in demand trends although rural growth was still lagging urban growth.

Unexpectedly low festival demand, deficit and unseasonal rain hit growth