Value growth came down to 7.1% while volume growth has fallen to 3.7 % in July 2019
Fast-moving consumer goods (FMCG) companies could be in for another round of growth slowdown post a dismayed performance in the first quarter of fiscal 2020.
The continuation of challenges in the market was recently discussed in a meeting between the top management of Dabur and analysts tracking the FMCG sector.
Abneesh Roy, executive vice president - institutional equities (research), Edelweiss Securities, wrote in a company note post discussion with the Dabur management that the overall market has slowed further after the first quarter. "FMCG industry growths are slowing down to such extent that oral care and hair care category are flattening now. Volume growth (overall) continues to remain under pressure. For FY20, expect to clock mid to high single-digit volume growth," Roy wrote on Dabur.
TOUGH TIMES
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- Value growth came down to 7.1% while volume growth has fallen to 3.7 % in July 2019
- In Q1 of this fiscal FMCG value growth was registered at 10% while volume growth stood at 6.2%
- Analysts said FMCG sector’s growth was lower in July 2019 due to weak sentiments
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Dabur management could not be reached for a comment.
On reasons causing the slowdown, Roy wrote it is due to liquidity crunch and agricultural distress owing to patchy monsoon. Accordingly, credit has gone up in the trade channel. The agricultural distress is also due to negligible growth in rural wages that stood at -1.2% in June 2019. This apart, unemployment is at its peak levels at 8.4% in August 2019, compared to 7.5% in July 2019.
Data from research firm Nielsen showed that the Indian FMCG sector has been witnessing a continuous slowdown, both in value as well as volume growth, starting the third quarter of fiscal 2019. While value growth was 15.7% in the October to December 2018 quarter of fiscal 2019, volume growth for the same period stood at 11.9%. Both value and volume growth declined further in January to March quarter of fiscal 2019 to 13.4% and 9.9%, respectively.
The numbers fell further in the April-June quarter of fiscal 2020 wherein value growth was registered at 10% while volume growth stood at 6.2%. Continuing with the decline, value growth came down to 7.1% while volume growth has fallen to 3.7 % in July 2019, clearly indicating the consumption slowdown and stress situation in the market.
Ashit Desai, senior research analyst, Emkay Global Financial Services said FMCG sector's growth was lower in July 2019 due to weak sentiments. "Dabur is gaining market share, but facing macroeconomic headwinds, liquidity crunch and agricultural distress (due to patchy monsoon last year). According to Nielsen Research, urban is growing faster than rural. For the company, rural is growing faster. Trade credit is going up and so is Dabur's – from 15-20 days to 30-40 days," Desai wrote in a note.
Dabur management's new growth initiatives appear positive and provide a better long-term growth outlook. "However, a weak commentary indicating a subdued demand trend along with near-term macro challenges does not offer upsides to our earnings estimates. Valuations at 41x FY21 estimated earnings per share (EPS) limit upsides and we await a better entry point," said Desai, adding that faster recovery in rural demand and market share gains remain key risk areas for the company.
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