Slowdown-hit FMCG companies pin hopes on rains, poll results

Most of the fast moving consumer goods (FMCG) companies, including market leader Hindustan Unilever Ltd, which reported a slowdown in rural growth in the fourth quarter, are hoping for good monsoon and stable poll results for things to turn around.

Companies feel a stable government at the Centre, reasonably good monsoon and steps to spur the investment cycle will put more money into the hands of the rural consumers and kick-start the growth cycle.

Agri-distress and liquidity crunch resulted in a decline in demand in the fourth quarter, Lalit Malik, chief financial officer, Dabur India Ltd.

"This decline was witnessed across rural and urban India. That said, rural demand continued to grow ahead of urban, though the pace of growth has slowed down. We expect rural demand to revive on the back of a good monsoon and fiscal stimulus reaching rural consumers post elections," said Malik.

Growing faster than urban till a few quarters ago, rural growth slowed down in the January to March period and is now almost at par with urban.

While HUL, Godrej Consumer Products Ltd and Dabur witnessed a drop in rural growth, Britannia and Marico saw rural outpacing urban growth. Rural sales for Marico grew 4% year-on-year, while urban sales declined 2% yoy in the fourth quarter in general trade.

Analysts from brokerages like JM Financial and Edelweiss Securities had said that rural distress has begun biting the country's most defensive pack – consumer staples – and that the FMCG sector's performance in the fourth quarter will get impacted.

Mohit Malhotra, chief executive officer - India Business, Dabur India Ltd, said in a recent earnings call that there's definitely demand slowdown. "One of the reasons could be agrarian distress, lack of stimulus to consumers, unemployment being all-time high and a lot of other macroeconomic factors. In the current quarter, we see a growth of around 7.8% coming out of rural and urban is growing at around 7%. Now the gap between urban and rural has drastically come down. Earlier we saw a gap of around 30% higher in rural growth as compared to urban growth. Now it has come down to around 10% level," he said.

Low wage rates and food prices meant less money in the hands of the rural people, resulting in slowing down of growth rate. Adding to the turmoil is the liquidity crunch in the market that impacted business for the wholesale distribution channel and general trade.

Srinivas Phatak, chief financial officer, HUL, said, "From an overall system point of view, given the banking and the NBFC crisis, not many corporates are borrowing to invest. That has indirectly started affecting the income. So there is a direct liquidity crunch that's affecting operations and there's system liquidity that's not giving enough levers for growth.