‘Paint, jewellery demand strong’
Consumer goods firms are expecting sustained demand recovery as escalating prices of daily commodities continue to strain household budgets. The pace of rural recovery may be gradual as sentiments could take time to improve, and staple firms seem to be somewhat undecided on a rural demand pickup as the macro remains tough.
Consumer goods companies are witnessing a mixed trend due to the lack of demand growth in rural areas, said Jefferies India analysts. While urban consumers are spending on staples, jewellery and paints, they are avoiding eating out, they added.
However, the analysts said that rural demand may pick up gradually. “The demand outlook is mixed with divergence across categories. Paints and jewellery continue to witness strong demand and double-digit growth, with the former also benefiting from a margins recovery. However quick service restaurants (QSR) remain subdued, albeit not worsening further. Margin recovery was seen for staples even as volume growth lags, and the outlook is cautiously optimistic,” Jefferies said in a report.
The report was based on the feedback from 13 leading consumer firms, including Hindustan Unilever, Vedant Fashion Ltd, Tata Consumer Products Ltd, Asian Paints, Titan Co and Zomato, among others, which were part of an internal forum hosted by Jefferies.
Consumer goods firms are expecting sustained demand recovery as escalating prices of daily commodities continue to strain household budgets. The pace of rural recovery may be gradual as sentiments could take time to improve, and staple firms seem to be somewhat undecided on a rural demand pickup as the macro remains tough. Price cuts by firms will help to some extent, it added.
There also has been divergence across firms, with Marico Ltd., and Tata Consumer Products Ltd., being more optimistic on its categories versus peers such as Dabur and Hindustan Unilever Ltd, they said.
“Volume growth has improved in rural markets and demand has bottomed out. For the FMCG industry, rural volume growth was flat to slightly positive in the March quarter. However, a full recovery will be gradual as it may take time for consumer confidence to build back as inflation cools. Further, while inflation has come off, material product price cuts have not happened for volume growth to inch higher,” executives as HUL told analysts at Jefferies. They expect near term growth to see “some impact” due to reduction in channel stock as the higher-priced inventory clears.
Companies also stepped up efforts to pass on price benefits to shoppers as commodity prices eased off from previous highs.
As a result, even though demand outlook varies, margin recovery is under way across the board. Analysts expect gross margins, that have been declining for the last two-to-three years, to expand in FY24, with companies looking to partly reinvest in ad spends to drive volume growth.
Meanwhile, for quick service restaurant industry, demand stabilized and is not “worsening further” in the current quarter for companies such as Jubilant FoodWorks that operates Domino’s outlets in India, and Devyani International, that operates a part of KFC, Pizza Hut and Costa Coffee stores in India. In fact, events such as the recently concluded Indian Premium League are expected to spruce demand, apart from summer holidays, and a few festivals-celebrations.
“Demand is expected to rebound in the consumption category in 2HFY24 as inflation wanes,” executives at Devyani International said at the forum. Inflation seems to be bottoming across inputs, including chicken, oil, packaging, wheat, etc., except cheese, they added.
Meanwhile, executives at jewellery and watch maker Titan Company said current demand scenario is “good”. “Seeing healthy demand also from the ongoing wedding season; 50% of industry volumes are from wedding where Titan is under indexed. This presents a large opportunity,” they said.
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First Published:5 Jun 2023, 11:13 PM IST
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