While P&G India CFO Jon Moeller said the company is doing well and ‘building share’ in the India market but the challenges “will likely remain for the balance of the year.”
P&G — the maker of detergent brands such as Ariel, Tide and shampoo brands including Head & Shoulders and Pantene said the company’s growth in India has slowed down because of the monetary policies. “Slowing growth rates in India largely as a result of some of the monetary policies, which has created a bit of a liquidity squeeze, which is drying up inventory through the system,” Jon Moeller, Chief Financial Officer at P&G told analysts during its Q2 2020 earnings call on Thursday. While Moeller said the company is doing well and ‘building share’ in the India market but the challenges “will likely remain for the balance of the year.”
The company reported a 5 per cent increase in net sales to $18.2 billion vis-a-vis the prior year from its global business. P&G returned $5.4 billion of cash to shareholders through $1.9 billion in dividend payments and $3.5 billion of common stock repurchases. P&G raised its outlook for “FY 2020 all-in sales growth from a range of 3-5 per cent to a range of 4-5 per cent growth versus the prior fiscal year,” it said in a statement. Details for India business and other markets weren’t shared in the company’s consolidated earnings information.
Dying up inventory or decline in inventory additions in India from 2006 to 2012 was between 4-5 per cent GDP, that is, GDP growth was higher as more goods were produced for inventory additions, according to Kotak Mahindra Asset Management Company’s Managing Director Nilesh Shah on Saturday. Most inventory is financed by bank & NBFC credit. Incremental bank credit in 2014 was 1.44 times incremental GDP, Shah tweeted on Saturday explaining lower GDP growth in reply to Moeller.
“In 2018 inventory addition is down to 1.8 per cent of GDP. In 2018 incremental bank credit dropped to 0.86 times incremental GDP. Lower working capital financing resulted in lower inventory additions which resulted in lower production and lower GDP growth,” he said in a tweet thread. The flow of funds to the commercial sector went down 88 per cent during April and mid-September 2019 over the previous year. The credit squeeze is felt by big FMCG companies, he added.
Moeller comments echoed sentiments of other large companies such as Unilever and Marico. The Indian market, the company’s second-biggest after the U.S., should start to recover in the second half of 2020, it said as reported by Bloomberg. Slowing consumption in India is weighing down makers of everything from shampoos to cars as the third-largest Asian economy expands at the slowest pace in six years. Marico also said earlier this month that the consumption trends during the December quarter don’t indicate sentiment improving soon. “Overall consumption trends during the quarter belied expectations of the beginning of a revival in sentiment which was built on the back of good monsoons and announcement of various government measures,” the company said in an exchange filing.