What FMCG Companies’ Q4 Earnings Indicate About Demand

Waning demand for consumers goods is yet another indicator pointing at a slowdown in the economy.

A shopkeeper serves a customer in a local grocery store in the Kalahati market area in Siliguri, West Bengal, India (Photographer: Sanjit Das/Bloomberg)  
A shopkeeper serves a customer in a local grocery store in the Kalahati market area in Siliguri, West Bengal, India (Photographer: Sanjit Das/Bloomberg)  

India’s four largest consumer goods makers remained cautious for the ongoing financial year as their volumes grew at the slowest pace in seven quarters on falling consumption—another indicator reflecting a slowdown in the economy.

Aggregate volume growth of Hindustan Unilever Ltd., Britannia Industries Ltd., Dabur India Ltd. and Godrej Consumer Products Ltd. stood at 4.8 percent in the quarter ended March against 8.9 percent a year ago, according to data compiled by BloombergQuint from companies’ filings. That’s the lowest since June 2018.

Consumer demand was stunted with passenger and two-wheeler sales falling since September. That’s also reflected in a drop in private final consumption expenditure, in line with declining real gross domestic product growth.

“We have seen a certain slowdown in our overall growth and it’s not just us,” Varun Berry, chief executive officer of Britannia Industries, said in an earnings call. Britannia Industries’ volume growth fell to 7 percent in the January-March period from 10.3 percent a year ago.

A large part of that slowdown has been in the rural segment, Berry said. “For Britannia, the rural slowdown is much higher than urban.”

Its peers agreed as well.

Hindustan Unilever’s volume growth averaged around 10 percent in the last six quarters as demand in rural areas outpaced urban. But “there has been a moderation in general trade and wholesale channels, which feed into the rural sector”, the nation’s No. 1 fast-moving consumer goods maker said after its fourth-quarter earnings. HUL’s volume growth fell to its lowest in six quarters at 7 percent. “The growth in HUL’s catered rural markets is now on a par with urban.”

Lalit Malik, chief financial officer at Dabur, said the overall consumer sentiment has deteriorated. But the company’s growth also remained subdued because of extended winter, which adversely impacts its foods category, especially juices.

Still, Malik said the weakness is temporary and the company will “bounce back”.

A delay in the onset of the summer season also slowed down the growth of Godrej Consumer Products, it said in its earnings release.

Mixed Bag

Higher pricing helped HUL and Britannia Industries sustain their operating margins during the March quarter. But earnings before interest, tax, depreciation, and amortisation margin of Dabur and Godrej Consumer Products contracted.