The much-anticipated rural recovery in the June quarter (Q1) of FY24 has been weak even as urban demand remained steady, commentary by firms such as Marico and Godrej Consumer (GCPL) suggests. However, Dabur India says that demand trends in both urban and rural areas have shown signs of improvement in Q1.
“One of the key contributing factors to this positive development has been easing inflation. Sequential moderation in inflation has positively impacted consumer spending power and is resulting in gradual improvement in offtakes in the industry,” Dabur said on Thursday, adding that it expected to register a growth exceeding 10% in its consolidated business in Q1.
Marico, the maker of Parachute and Saffola, in contrast, has been quick to flag concerns in the rural economy, which gives FMCG firms over a third of their total sales. The signs of demand improvement were not clearly visible in Q1, the company said, adding that it saw a revenue drop because of a sluggish rural demand. “Though urban markets were steady, the anticipated pickup in rural demand remained elusive,” Marico said on Wednesday.
Peer GCPL, while pointing to a double-digit volume growth in Q1, said it was led by home and personal care, which have an urban bias.
Anuj Sethi, senior director, Crisil, says that the rural recovery in FY24 will be fragile and slow. “The growth in sales offtake visible in the June quarter has to do with inflationary pressures cooling off, which has allowed companies to pass on gains to consumers. However, price-led growth has taken a hit,” he says. This was visible in Adani Wilmar’s numbers for Q1.
While Adani Wilmar’s overall volume growth stood at 25% for Q1, value growth declined 15% because of a sharp fall in edible oil prices and other essentials during the quarter.
Crisil has said that FY24 will see a 7-9% rise in revenue growth for FMCG firms, slower than the 8-9% revenue growth seen in the last two years for the sector.
“At the consumption level, rural areas have been weak in the June quarter because of unseasonal rains. The acreage under cultivation was also impacted because there was damage to standing crops due to weather uncertainty. This has impacted purchasing power,” he said.
This explains why small packs continued to be in demand in the June quarter in categories such as branded commodities, according to Bizom, a retail intelligence platform, despite inflation cooling off versus the year-ago period.
Real wage growth in the hinterland, according to the Labour Bureau, contracted for 16 straight months to March. Experts say this trend would have stayed in the June quarter when unseasonal rains weighed on farm output and incomes.
Rural consumers typically curtail spends in periods of uncertainty. Despite the challenges, analysts and companies say that the second half of the financial year is likely to be better than the first half, provided the monsoon season goes well. “There could be a consumption uptick in the second half of the year, if there is no El Nino impact and inflation continues to remain benign,” Kaustubh Pawaskar, deputy VP, fundamental research, Sharekhan, said.