Indian consumer goods makers bet on rural recovery to lift profits

Tata Consumer Products

16/02/2023 11:18

By Praveen Paramasivam and Anisha Ajith
       CHENNAI/BENGALURU, Feb 16 (Reuters) - A nascent revival
in rural demand is likely to prop profits at Indian consumer
goods companies in the March quarter, as improving income and
credit disbursal allow buyers to spend more on branded oils,
tea, snacks and soaps. 
    Cinthol soap-maker Godrej Consumer Products Ltd  GOCP.NS 
and Parachute oil manufacturer Marico Ltd  MRCO.NS  are set to
improve their earnings the most in two years when they report
results for the fiscal fourth quarter, according to Refinitiv
data.
    Hajmola-maker Dabur India Ltd's  DABU.NS  profit is expected
to grow 35% - the highest in at least 16 quarters - during the
same period, according Refinitiv.
    Rural consumers - hit especially hard in the aftermath of
the pandemic - typically make up about two-thirds of consumer
goods companies' sales, according to Bengaluru, Karnataka-based
Bizom, which tracks retail industry trends.
    A pick-up in demand in this key market is seen as a
reflection of improving trends in the economy, which is still
battling high inflation.
    "It is likely that rural slowdown is bottoming out," Sanjiv
Mehta, managing director of Hindustan Unilever Ltd  HLL.NS ,
which sells Dove soaps, said last month at a post-earnings
conference call.
    While analysts and executives did not break up how much
rural sales would improve as against the more steady urban
demand, they agreed that companies would see finances improve as
consumers in small towns and villages traded up to higher margin
name brands.
    Depressed rural demand led to an upto 4.1% drop in quarterly
sales volumes at consumer goods companies over the last five
quarters, shaving off millions of rupees from their top-line,
industry reports have estimated.
    Cash strapped rural buyers traded more costly snacks and 
personal care brands for local alternatives sold at mom-and-pop
stores, if not foregoing some purchases altogether. 
    "A reversal (from unbranded to branded) is going to happen,
driven by increase in rural income, because people want brands,"
Marico Managing Director Saugata Gupta said earlier this month.
    With these initial trends, Little Hearts biscuits maker
Britannia Industries Ltd  BRIT.NS  and Maggi noodles seller
Nestle India Ltd  NEST.NS , which have been expanding their
rural distribution, stand to grab a bigger share of consumer
spend, analysts have said.
    "We have now 28,000 rural distributors versus 26,000 in
March 2022," Britannia Managing Director Varun Berry said after
the biscuits giant reported quarterly profit that more than
doubled.
    To be sure, a full recovery of rural demand would likely
take two or three more quarters, experts added.
    "From a real bad period in June, July, we have definitely
seen improvement," Unilever's Mehta said, but added: "We are not
jumping to the conclusion that everything is hunky-dory."
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
India's consumer goods majors to see sales improve    https://tmsnrt.rs/3EdT9wZ
Rural recovery to help drive FMCG earnings    https://tmsnrt.rs/3I36rgY
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 (Reporting by Praveen Paramasivam in Chennai and Anisha Ajith
in Bengaluru; Editing by Nivedita Bhattacharjee)
 ((Praveen.Paramasivam@thomsonreuters.com; +91 867-525-3569;))