Rural India a tale of contrasts for FMCG majors HUL, Nestle
Two of the country’s top fast-moving consumer goods (FMCG) sector executives – Sanjiv Mehta of Hindustan Unilever (HUL) and Suresh Narayanan of Nestle India – seem to have a different view of the rural growth story.
Two of the country’s top fast-moving consumer goods (FMCG) sector executives – Sanjiv Mehta of Hindustan Unilever (HUL) and Suresh Narayanan of Nestle India – seem to have a different view of the rural growth story.
While Mehta, who is the MD & CEO of HUL, says that rural areas have felt the inflation impact in the March quarter, Narayanan, who is the chairman and MD of Nestle India, says there is a positive traction visible in the hinterland.
Analysts say that the two companies have different product profiles, which has led to the contrasting perspective on the market. While HUL operates in the FMCG staples category, including a range that covers home and personal care to food and beverages, Nestle is only a food and beverages company in India.
“So, the impact of inflation on consumption of everyday items is more versus Nestle’s portfolio, which is discretionary in nature,” says G Chokkalingam, founder and MD of Mumbai-based Equinomics Research and Advisory.
HUL derives around 40% of its annual sales from rural areas, while Nestle’s rural sales is around 20-25% of its total sales in the country.
In post-results interactions, Narayanan has described the rural consumer as being aspirational, who wishes to emulate his or her urban counterparts.
“I’m seeing a positive traction in terms of the desire of consumers to look for quality, value and trust in the brands they consume. This is not just an urban phenomenon. But I’m seeing this in rural areas too. This is fueling the pickup in consumption momentum,” he said.
Mehta, on the other hand, was more circumspect with regard to rural consumption.
He said during the company’s post-results briefing last month, “When the wallet size is small, the impact of inflation is big. Moreover, subsidy schemes have been slashed and the free foodgrain programme has been halted. All of this has hurt rural volumes.”
In the March quarter, HUL reported a 9.7% year-on-year (y-on-y) growth in fourth-quarter (Q4FY23) net profit and a 10.6% y-on-y growth in revenue to Rs 2,552 crore and Rs 14,893 crore respectively, missing Street estimates. This came as inflationary pressures continued to weigh on consumer demand, especially, in rural areas.
In contrast, Nestle reported a 24.7% y-on-y growth in consolidated net profit for the March quarter to Rs 737 crore, while consolidated revenue rose 21% for the period versus last year to Rs 4,831 crore. These numbers beat street estimates by a wide margin, with pricing, volume and product mix contributing to growth.
Narayanan said that the company’s strong quarterly performance was supported by distribution expansion in rural areas, e-commerce momentum and increased focus on premiumisation. Mehta, on the other hand, said he saw rural growth improving in the quarters ahead as commodity inflation was moderating.
“We are clear that we have to maintain the price-value equation. If the commodity prices go down, we will pass on the benefit to consumers,” Mehta said.
But with unseasonal rains lashing parts of the country and a possible El Nino weather condition looming large over the monsoon season, analysts warn that rural incomes may suffer in future.This could hurt rural sales.
“Unseasonal rains can lead to crop loss and hurt the incomes of farmers, not to mention that it could lead to a rise in food inflation,” says Sachin Bobade, vice-president, research, at brokerage Dolat Capital.
The IMD has predicted light to moderate rainfall, along with thunderstorms, in the northwest of India over the next few days due to a western disturbance. This comes as the skies remain overcast in parts of India, even as some other parts of the country are seeing heat waves.
Chokkalingam says that erratic weather will set the rural economy back, which was just beginning to show signs of revival after at least three quarters of a decline. “Rural incomes will get hit with unseasonal rains and a likely El Nino impact on the monsoon season. I see a pickup in demand only by the third quarter of FY24, that too if rural consumers are not severely impacted by erratic weather,” he says.
#ruralindia #ruraltv #rural #nature #agricultura #farmlife #farming #india #rurallifestyle #ruralarchitecture #ruralhouse #ruraltourism #ruralexploration #ruralliving #rurallifestyle #ruralwomen #health
