By Kritika Arora
Fast moving consumer goods (FMCG) companies are hopeful of rural consumption improving in the coming quarters on the back of softening in commodity prices, normal monsoons and government measures.
Rural volumes have largely been muted so far because of inflationary pressures impacting consumption in the regions.
The single-biggest factor that will determine rural volumes is commodities, said Ritesh Tiwari, CFO, at Hindustan Unilever (HUL) during a post July-September earnings analyst call.
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“If the broader basket of commodities cools off, the way vegetable oil has, it will bring down the prices and that will help consumption and volumes. Then macro factors at play like urban employment improving which would send back money to rural areas will augur well for rural, monsoons have been normal but yet to see how crop realisation will play out, and other government measures like fertiliser subsidy will determine rural consumption, Tiwari said.
HUL MD Sanjiv Mehta had said that on a moving annual total (MAT) basis, urban growth has so far outpaced rural. However, rural headline growth is seen improving now, and henceforth, rural volumes will depend on commodity prices, crop realisation and government measures, he added.
In the June quarter, the urban markets revived with positive volume growth of 0.6%, compared with a slower recovery the in rural markets of -2.4% for the quarter, according to data from NielsenIQ India.
During July-September, inflation impacted Tata Consumer Products’ tea consumption, leading company’s beverages revenues to drop 7%, while volumes were also down 1% due to price corrections and category slowdown.
Sunil D’Souza, CEO at Tata Consumer, said the India tea business is witnessing softness primarily in rural and semi-urban areas, while the premium category is doing well. “Stress is at the bottom, and at very specific geography. So its not broad based,” he said.
He added that though some green shoots can be seen due to good monsoons, he would not declare victory yet.
Dabur India also said during the September quarter, the impact of inflationary pressures was more pronounced in the rural markets with demand growth in the hinterland lagging urban markets for the first time in five quarters. However, the company is hopeful of rural demand reporting a smart recovery in the coming quarters.
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Rural India accounts for around 38-40% of the overall FMCG industry’s volumes.
Analysts are of the view that while so far rural volumes have remained subdued, consumption could pick up from the second half of the current fiscal on the back of a good monsoon largely. However, deficient monsoon in some states could still continue to hurt rural consumption.
Prabha Narasimhan, managing director at Colgate-Palmolive (India), is also cautiously optimistic on the overall growth trend, especially in rural, she said in a statement.