Economy
Mint Explainer: Why FMCG companies expect subdued volume growth in Q2
Summary
- Patchy monsoon rains have led to fresh concerns about demand revival, especially in rural India
Fast-moving consumer goods (FMCG) majors such as Marico Ltd., Godrej Consumer Products, and Dabur India Ltd. released their quarterly business updates, providing insights into demand trends. While signs of demand improvement were evident, companies highlighted challenges such as rising food prices and uneven distribution of rainfall, which hampered rural demand recovery. The consensus points towards a modest volume growth.
How was demand in the September quarter?
In the September quarter, most firms reported subdued volume growth. Marico, a prominent hair oil manufacturer, found demand trends consistent with the previous quarter, pointing to various climatic and economic impediments that stymied rural demand revival.
GCPL highlighted weak macro conditions and adverse weather during the same period. Dabur, known for its Vatika shampoo, acknowledged a year-on-year improvement, but said recovery has been "gradual". "This quarter witnessed a mild summer and a slightly deficit monsoon. Festive season is later than normal this year due to which off take related to festivals is delayed and will carry forward to the next quarter," Dabur said in a filing to the stock exchanges.
How did companies perform in their respective categories?
Marico's report revealed low-single-digit domestic volume growth year-on-year, with low single digit volume growth in Parachute coconut oil and Saffola edible oils, and low single-digit value growth in value added hair oils. "Consolidated revenue was marginally lower on a year-on-year basis, dragged by pricing corrections in key domestic portfolios over the last 12 months, which will progressively come into the base going ahead," the company noted. Input costs, particularly for copra and edible oil, remained favorable despite some volatility.
Dabur, on the other hand, anticipates mid-to-high single-digit growth for the September quarter's consolidated revenues. "In India, healthcare and HPC segments are expected to grow in high single-digit. On account of a mild summer and change in festive season, we anticipate the F&B business to remain slightly below last year revenue," the company said.
GCPL, based in Mumbai, saw growth in home care volumes at mid-single digits, while personal care witnessed low-single-digit growth. Overall volume growth slowed down to mid-single digits, even with a soft base.
Why is this commentary important?
Such quarterly narratives from deeply entrenched FMCG manufacturers across the nation are pivotal in assessing household demand for essential goods. Their significant reach into rural regions offers insights into village consumption patterns, thus providing a glimpse into household financial well-being.
Will rural demand improve?
Analysts have said that patchy monsoon rains derailed rural recovery.
"In Q1FY24, there were some green shoots in rural demand. However, given very weak rainfall in August (at 100-year low), rural demand has again turned weak. September has been better in terms of rains with a 13% surplus, but it has still not lifted the spending spirits in rural given shift in festival demand," said Abneesh Roy of Nuvama Securities.
According to data from the Indian Meteorological Department, August was the driest on record with rains 36% below normal, followed by 13% surplus rainfall in September. This has further complicated rural recovery dynamics.
Marico said consumption trends, particularly in rural India, are expected to improve in the second half due to retail inflation levels staying within Reserve Bank of India’s target range, hike in minimum support prices of crops, healthy sowing season, easing liquidity pressures and government spending. Meanwhile, Dabur expects recovery in consumption in both urban and rural markets on account of improved macro indicators, increase in government expenditure and positive consumer sentiment.
