Is consumer demand back on track?

Consumer companies are still unclear about a possible revival in consumer demand a year after demonetization on November 8, 2017, that led to a considerable degrowth in business over the following few quarters last fiscal. Businesses began seeing some revival in the first quarter of fiscal 2018, but that was mainly due to stock clearance frenzy with the advent of goods and services tax (GST) getting rolled out starting July 1, 2017.

 So, has the consumer demand reached the pre-demonetization levels a year after its implementation? September quarter results for fiscal 2018 declared by various listed entities involved in consumption-based businesses do indicate so as both volumes and profits have increased for fast moving consumer goods (FMCG) companies.

 According to Sanjiv Mehta, chief executive officer and managing director, Hindustan Unilever Ltd (HUL), while there has been a revival in the consumer demand it is still too early to have a concrete view if it has achieved normalcy.

“What you saw was vibrations within the channel (trade pipeline), there was turbulence in the market and there is no question about that. This turbulence got near normal as we moved towards the end of the second quarter. Canteen stores department (CSD) is still a bit lower than what their normal buying pattern was but it has picked up significantly. If you look at the start and end of the September 2017 quarter, I would believe by end of December there should be a near normalcy,” said Mehta at the quarterly results meeting.
 

Echoing the sentiments, Sunil Duggal, chief executive officer, Dabur India Ltd, said, trade channels have largely normalised and consumer offtake has been reporting a steady growth which is evident from their reported volume and profit growth. “The medium to long-term prospects, particularly for India, remain robust and we are confident that domestic consumer demand will gain pace in months to come,” he said.
 

 Elaborating on what has led to this demand revival for FMCG companies, Abneesh Roy, senior vice president (Institutional Equities) and research analyst, Edelweiss Securities Ltd, said it is partly due to re-stocking as GST had led to destocking in the first quarter and the second quarter was more of a catch-up. “Last three quarters, there has been an impact of demonetization and GST and that's stabilised now. The rural market is also looking good due to good monsoons, SOPS by the central government, farm loan waivers, minimum support price hike, etc.
 

 “The second half should be really good and the base is also favourable. I can say, rural recovery has started, which will continue and accelerate from here as we enter the 2019 election year,” said Roy, adding that demand growth/recovery is not an issue as long as trade channels remain stable, monsoons are good and urban jobs take-off.
 

Companies operating in the apparel retailing business haven't been so lucky as pre-GST and extended end-of-season sales impacted profitability despite high volumes that came at heavily discounted prices. Numbers declared by Shoppers Stop are a clear indication of the stress in the fashion apparel business. However, according to Govind Shrikhande, customer care associate and managing director, Shoppers Stop Ltd, teething issues have been resolved and the company is well on track for a strong festive quarter.
 The consumer durables/electronics industry has more or less a similar story with players still awaiting pre-demonetization market scenario. Kamal Nandi, business head and EVP, Godrej

Appliances, said the aftermath of demonetization lasted till the first quarter of 2017, wherein the consumer durable industry de-grew by 40% and 15% in November and December of 2016, respectively followed by 3% decline in January 2017.
 

“Though there was no growth recorded for the months of February and March, sales picked up in the month of April 2017. However, the recovery of the demand from the effects of demonetization must be discussed in conjunction with the impact of GST, which started to trickle in since May '17. We saw a boom in sales pre–GST implementation, riding on the offers levied by retailers, followed by a lull post the implementation. The industry has since recovered, witnessing marginal growth during the festive season, though short of our expectations,” said Nandi.
 

With mixed views from across consumer businesses, industry experts are of the view that overall consumer demand is still in a complex state with certain categories showing an upside while others are still to recover.
 

Ankur Bisen, senior vice-president - retail and consumer products division, Technopak -- a consulting firm, said all the need-based consumption categories comprising everyday household products have recovered. “Sectors like FMCG, modern retail, etc., are showing double-digit year-on-year growth and are largely in line with the pre-demonetization levels. Surprisingly, Apple has claimed their sales in India have doubled over last year with large volumes being sold through Amazon and Flipkart. So, growth in the consumer durables/electronics industry is almost there as well. The discretionary categories where purchases have been postponed or reprioritised (like jewellery, travel, eating out, etc) are still seeing a lukewarm customer response in the market,” he said.
 

    HUL's Mehta cleverly summed up during the quarterly results meet, “If you look at the turbulence, it has many factors and all packed in the next few quarters. If you look at the December quarter and see the volumes go up, I would like you to be circumspect because the same quarter in the previous fiscal had demonetization. So the impacts have been several and we’d really like to wait and see what are the trends emerging.”