Consumer firms face dry heat as rural consumption may take 3-4 quarters to revive

NEW DELHI: Revival of rural consumption, a major driver for consumer goods business, is still at least 3-4 quarters away despite predictions of a good monsoon, agricultural reforms and commodity prices like sugar strengthening over the past few weeks, leading consumer food companies and brokerages say.

"We still don’t expect to see the 11-12 per cent growth numbers in the rural sector, which was the case during the UPA government. There has not been enough stimulus and recent agri-based reforms will take time to revive consumption," said Sunil Duggal, chief executive of the homegrown Dabur India. Dabur, which makes Vatika hair care products and Real juices, will step up incremental focus on urban products over the next two quarters.

"We expect healthier consumption pick-up in urban markets at 7-8 per cent," he said. Growth across consumer staples has been averaging in mid-single digits over the past 5-6 quarters. A potentially good monsoon and payouts for government programmes haven’t seen a spike in sentiment among consumer goods makers, who typically sell 45-50 per cent of their products in rural markets. Sales growth in rural markets has been averaging mid-single digits last year against a high of mid-teens in 2013-14, which analysts attributed to deficit rains and lack of incremental minimum support prices.

"With sales growth likely to remain anaemic in FY17 and margins at peak levels given the rising fragmentation of demand, we remain negative on the sector," said a Religare report on consumer staples released this week In the fourth quarter, consumer companies including HUL, ITC, Nestle, Britannia and Dabur averaged 6.7 per cent sales growth year-on-year, against an estimated 7.2 per cent, with no material uptick in demand trends sequentially. Biscuit maker Britannia’s managing director Varun Berry sees revival of rural consumption only after two quarters.

"Modern trade, on the other hand, has been holding up, which has led to better consumption offtake in urban markets. A good monsoon could lead to growth in rural consumption at about 7-8 per cent at best," said Berry.