Consumer goods companies pointed to sluggish recovery in rural demand in the September quarter and said demand will improve “gradually” even as urban markets charged ahead helping companies lift quarterly volumes.
“Obviously there is a slowdown as far as FMCG is concerned. We are seeing a clear slowdown in rural. Despite us continuing to get deeper into rural areas, getting into more villages, etc, we have started to see the rural economy to splutter a bit. However, these are macro issues which companies like us cannot sort out,” Varun Berry, executive vice-chairman and managing director, Britannia Industries Ltd, said during the company’s post earnings call on Thursday.
The company reported flat volume growth for the quarter gone-by.
Rural markets had reported a 4% volume growth in the June quarter after reporting a 0.3% jump in March quarter volumes. While volumes have improved sequentially in the September quarter, companies said pace of growth has been slow. Growth also came on a negative base of the previous year when volumes dipped in mid single digits.
Parachute oil maker Marico said that September quarter demand trends in the domestic FMCG sector were largely in line with the preceding quarter. While urban sentiment improved sequentially, instances of higher food inflation and uneven rainfall distribution led to a slower-than-expected pace of recovery in rural demand, the company said.
The company reported a 3% jump in domestic volumes in the September quarter.
In an interview with Mint, Saugata Gupta, the company’s MD & CEO said rural demand continues to lag urban. “Having said that, when we look at the overall volume growth, demand is not the only factor. There are other things that have happened. There has been some inflation and some down trading and in some of our categories, that down trading can be to smaller brands, or to unbranded goods,” he said.
The company reported a weak demand for more mass market categories such as hair oils.
Gupta said rural recovery will be more gradual from now on. “With the monsoon scare gone, in August we were concerned, but September rainfall broadly made up. Having said that, we don’t expect a very sharp recovery, it will be gradual,” he said.
Last month, India’s largest packaged consumer goods company Hindustan Unilever had said that rural demand remained subdued, with volumes continuing to decline marginally on a two-year basis.
Meanwhile, Dabur said rural markets are lagging urban but demand is steadily improving in India’s villages.
“If you look at the syndicated data, the same thing we are seeing in our business. If you look at past three quarters rural *growth* was in the negative territory. It has moved from a negative to positive territory over the last three quarters. So the trajectory of rural is only getting positive but we’re lapping a lower base. I think rural will continue to gain traction, albeit it is happening slowly but it will happen surely. With MSP increases that the government is announcing, with the election season coming up, infrastructure investment being sustained by the government, etc. Plus rainfall and crop seedings have been good for the winter crop,” said Mohit Malhotra, Dabur India’s chief executive officer.
Malhotra said markets in south India were particularly stressed.
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