Business & Investment

Early signs of normal consumer behavior in the second quarter

From toothpaste to ready-to-eat snacks, rural households consumed more than urban households, boosting demand for the quarter ended in September. There is also a growing demand for more expensive packs.

Two signs that normal consumer behavior is returning after a pandemic-led cataclysm.

Demand for consumer goods increased 58.2% year-on-year in the hinterland of India, according to data compiled by business intelligence provider Bizom. This is more than double the consumption in urban areas.

The company attributed this trend to normal rainfall, rising rural employment markets, and a resurgence of factory and infrastructure labor demand.

The surge in the number of active Kiranas, or grocery stores in the neighborhood, helped. According to the company, which deals with about 7.5 million retailers across India, the number of such stores currently in operation increased 2.44 times year-on-year.

“FMCG growth over the previous year continues to be strongly supported by rural areas. Bizom-owning Mobisy Technologies Pvt. Head of Growth and Insights Akshay D’Souza told Bloomberg Quint.” 8 in rural areas. It grew 1.9% in September compared to the month, but shrank 1.8% in urban areas. “

After being hit hard in the April-June 2020 blockade quarter, the FMCG industry of 45,000 rupees was the first in the Covid-19 pandemic when companies faced challenges such as closures and labor shortages. It was hardly affected by the two waves. .. This time the manufacturer was ready and consumers weren’t in a hurry and were gradually blocked. According to Nielsen data, the sector grew 37% in the quarter ended September 2021.

Most major manufacturers including Hindustan Unileaver Co., Ltd., ITC Ltd., Nestle India Ltd. When Dabur Co., Ltd. We also avoided passing on soaring raw material costs to consumers. Still, overall prices for packaged products rose 5.8% during the quarter, Nielsen said.

Systematix Institutional Research expects demand to increase in the third quarter of the current fiscal year, but raw material prices remain a major headwind.

“Rural demand remains strong, driven by regular monsoons and strong harvests of Harif, while urban markets will gradually recover due to increased mobility in the second quarter of 2010.” Said in a recent note. “Consumer staple companies in particular are trying to mitigate the effects of sharp inflation in raw material prices, so balancing volume and price increases will be an important issue.”

High prices for cooking oil, metals and crude oil in the international market can weigh on domestic retail inflation. Passing on high oil prices to the transportation sector can also indirectly affect the cost of other commodities.

According to ICICI Direct:

  • Average palm oil prices were up 60% year-on-year and 6% quarter-on-quarter.

  • Average crude oil prices rose 68% year-on-year and 6% quarter-on-quarter.

  • Copra prices are almost the same as they were a year ago, but have fallen 22% from their March peak.

Price pack in demand

A few months ago, consumer goods manufacturers launched cheaper inventory management units or packs to attract consumers as the economic slowdown hurt demand. According to Bizom, that trend now seems to have reversed.

In particular, high-priced SKUs for staple foods such as cooking oil, spices and basmati rice increased by 8% and now account for almost 45% of total sales. Rapidly rising input costs and festive stockings have contributed to this transition. According to the data, the share of high-priced beverage and home care products is slowly increasing.

In addition, as demand for premium and high-priced products grows, companies are stepping up new product launches. “Packaged foods showed the highest traction in terms of the number of new premium products launched (28% share of the total), followed by personal care products (23% share of the total),” Bizom said. Said.

However, analysts disagree with Bisom’s FMCG sector sales forecasts of 30% in September, 44% in August and 60% in July, all year-over-year. Abney Schroy, Executive Director of Edelweiss Financial Services, said: He said rural demand in the second quarter remained resilient and urban demand, including modern trade, was gradually recovering.

Q2 Revenue Preview

Prabhudas Lilladher

  • Second-quarter results are expected to improve, with sales and pre-tax profit expected to increase 25% and 16.4% year-on-year, respectively. 115 Ebitda margin to reduce basis points.

  • Company-wide sales volume is expected to increase due to improved consumer sentiment and open economy.

  • The current global supply chain-led inflationary environment is half-hearted and can lead to fluctuations in margins and demand in the short term.

  • Demand for many necessities is lower than last year, at first-quarter levels, as the incidence of Covid-19 is declining. There is clear pressure on disinfectants, hand washing, immunity boosters, and household items.

  • Discretionary products benefit from the relaxation of blockade standards. Strong traction is found in skin care, cosmetology products, deodorants, extruded snacks and consumer products.

Motilal Oswal

  • In the second quarter of 2010, we may report strong cumulative growth of 15% at the top line, 10% at Ebitda and 10% at after-tax profit. This is based on sales for the second quarter of 2009 and Ebitda’s cumulative total of 5.4% and 7.3%, respectively.

  • Much of this growth is believed to be due to increased demand for discretionary powers, backed by a) increased mobility, b) gradual removal of restrictions, c) long-term store openings, and d) modern trade resumption. I will. These are all faster than last year.

  • Rural markets remain resilient against the backdrop of strong Harif crops, good rabbi sowing, and above long-term average monsoons.

  • Year-over-year gross margins may continue to be under pressure from rising inflation.

  • The non-home category is up this quarter.

ICICI Direct

  • In the second quarter of FY22, consumption trends normalized after the recovery from the second wave of the pandemic. Fast-moving consumer goods companies believe they will continue to witness structural medium to high single-digit sales growth.

  • Most companies raised prices by 5-15% in the previous quarter to withstand inflation in commodity prices.

  • Cigarette companies expect sales volume to increase by 5-7% in the second quarter.

  • Structural trends in the FMCG sector, namely expanding direct distribution, growing e-commerce channel sales, shifting consumption to packaged foods, and new launches will continue to drive growth in the medium term.

  • From product inflation to pressure margins in the short term

Nirmalban

  • Essential / Staples companies are expected to maintain their position in the second quarter.

  • The recovery of discretionary consumption, which had been suspended due to the second Covid-19 wave in the first quarter of 2010, resumed at a rapid pace in the second quarter of 2010.

  • Fast-moving consumer goods companies were looking at a normal operating environment in the second quarter of 2009, but most discretionary companies continued to have a very low base, so year-over-year growth seems to be optically strong. I can see.

  • Driven by consumer staple foods, total sales in the second quarter of 2010 will increase by 7% compared to the second quarter of 2008. Ebitda margins could shrink 140 basis points year-over-year, as cost savings cannot counter the dual effects of raw material inflation and high advertising costs. At the operating level, margins can decrease by 90bps year-on-year.

  • The rural market continued to remain resilient against the backdrop of good rabbi harvest, healthy realization, good sowing of harif, and a decent monsoon season that resumed after a short break.

Early signs of normal consumer behavior in the second quarter

https://www.bloombergquint.com/business/q2-fmcg-results-preview-early-signs-of-normal-consumption-behaviour Early signs of normal consumer behavior in the second quarter

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