Some of the country’s top fast-moving consumer goods (FMCG) companies expect the rural sales momentum to continue for the third straight quarter in the July-September period, coming at a time when demand conditions are improving in the hinterland.
“The rural revival is getting better and rural volume growth will continue to be ahead of urban volume growth in the September quarter as far as the FMCG market goes,” Mohit Malhotra, CEO, Dabur India, said. Dabur derives close to 50% of its sales from rural areas, ahead of the industry average of a third of FMCG sales.
In an investor call last week, Procter & Gamble India’s MD & CEO V Kumar said the domestic FMCG market was showing positive consumption trends as inflation declined and rural growth recovered over the last few months. The strong momentum had prompted the company to double down on India, Kumar added.
“Though rural wages and unemployment are key monitorables, normal and above-normal rains have covered 75% of districts in India, which should help stabilise the market and aid rural growth,” Mrinalini Srinivasan, chief financial officer at P&G India, said.
Conversations with industry executives indicate that the FMCG market may report rural volume growth of 6% in the September quarter, versus urban volume growth of 2% during the period. The assessment is based on sales traction in urban and rural markets in the July-September period, as sentiment remains strong in rural areas, executives said. Urban areas are expected to report optimally lower growth numbers in Q2 due to a high base effect, experts added.
In an interaction with FE, Ritesh Tiwari, CFO of Hindustan Unilever (HUL), the country’s largest FMCG company, said the consumption climate was better now in rural areas versus earlier when there was high inflation. “Rural wage inflation was unable to keep pace with commodity inflation levels earlier, which led to a reduction in disposable incomes, hurting consumption in rural areas. Now, with commodity inflation down, the purge that was visible in disposable incomes has reduced,” Tiwari added.
Companies also expect value growth to start improving from the December quarter, as price hikes are undertaken, especially in packaged foods and kitchen staples, to mitigate inflationary concerns.
“Tea has turned inflationary this year on the back of a two-year deflationary cycle. These are early signs that if the inflationary trend continues in tea, we may take calibrated price hikes. The second area where we are seeing some sequential inflation building up recently is crude palm oil. This is a key ingredient that goes into making soaps, hair care, and some skin care products,” Tiwari said.
Edible oil companies have already taken the first round of price hikes in the range of 5-10% following an increase in import duties on crude and refined oil. Companies expect value growth to improve as a result of the move, though volume growth, which was in strong double-digits (12-15%) over the last few quarters, may taper off in the coming months.
From: financialexpress
Financial News
