Marico’s Q1FY21 update, announced last Friday, underlined this trend. The owner of the popular Parachute brand of hair oil expects Q1 domestic volumes to decline by low double digits (11-14 per cent), against a 3-per cent fall in Q4FY20. Marico’s Saffola edible oil, which had seen 25 per cent volume growth in Q4, is likely to see strong traction in Q1, as well.
Britannia and ITC’s FMCG segment, too, have been outliers, as they witnessed over 20 per cent growth in April and May, said HDFC Securities in its report. In Q4 also, with up to 10.8 per cent top-line growth, Britannia and Nestlé, which are into packaged food, were outliers.
Other FMCG majors, including Hindustan Unilever (HUL), had seen a fall in net sales in Q4, which also percolated through the bottom line.
Varun Singh, analyst at IDBI Capital, confirmed this trend. He said: “While discretionary segments, such as beauty and personal care, would see further decline in volumes, there would be a moderate impact for hygiene and food items, other than out-of-home consumption.” HUL’s management, during its Q4 earnings
call, too, had highlighted that the discretionary and out-of-home consumption categories would remain affected in the near term. This was due to a shift in consumer preference towards essentials.
Godrej Consumer Products — which this week said it expects mid-single-digit volume-driven domestic sales growth in Q1, led by the household insecticides and hygiene segments — would also benefit from a low base. The company’s domestic volumes had contracted around 15 per cent Q4FY20 and grew a mere 5 per cent in the June 2019 quarter. Its other discretionary segments, such as hair colour and air freshener, as well as some international operations, remain under pressure.
While the situation is unprecedented, most companies, including from other sectors, expect rural India to recover faster than urban India. Until the outbreak of Covid-19, rural demand (36 per cent of FMCG sales) was under pressure. However, factors, such as the limited spread of Covid-19, the government’s focus on the scheme under the Mahatma Gandhi National Rural Employment Guarantee Act, reverse migration of daily-wage labourers, good rabi crop, and normal monsoon, bode well for rural India.
According to Nielsen, the consumption rate in rural India had already reached 85 per cent of pre-Covid levels in May, vis-à-vis 70 per cent in urban markets.
The trend in June has improved further, analysts said.
Nielsen also estimates around 5 per cent growth in the overall FMCG segment over the next nine months with rural growth outpacing urban areas by about 2x, reversing the trend of the past two years.
“The impact of cyclones and heavy rainfall in some parts, however, remains to be seen,” Pardeshi of Centrum Broking cautioned.
Among a few silver linings are lower input costs and cost-efficiency measures undertaken by FMCG companies.
These are expected to partly soften the impact of the subdued top line in Q1.