Marico and Britannia cheer rural growth as FMCG cos pin hopes on monsoon

New Delhi: Consumer goods makers such as Marico Ltd and Britannia Industries Ltd on Monday said rural demand trends improved in the June quarter, as companies reported better sales of their products in the past few months.

"The rural growth is starting to come back, which had been lagging urban growth for some time. That's something which will help us, overall, get better growth. So, the reason for the same is obviously better monsoons, moderate inflationary conditions, as well as employment—there’s some employment data which is showing that rural employment is at an all-time high. So, things are looking a little better, still not out of the woods completely, but definitely better than where we were,” Varun Berry, vice chairman and managing director, Britannia Industries, said during the company’s post-earnings call on Monday.

Urban vs rural market

Berry said the company’s performance in rural markets was “better” than in urban markets,barring some pockets of the Hindi belt.On Friday, the biscuit maker announced June quarter earnings. The company’s volume growth accelerated in high-single digits, aided by share gains. “We continue to make positive strides in rural areas as we expand distribution footprint and enhance product offerings to align with regional preferences, and are well-positioned to benefit from the consumption growth in rural areas. As a result, rural market share grew at a faster clip than urban,” he said.

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“The quarter continues to witness gradual improvement in demand trends with rural growth ahead of urban. Pricing will, however, turn flattish on a year-on-year basis while both home and personal care and food witness an uptick. The pickup in home and personal care has been more pronounced over the last six months. Premium segments continue to outpace mass segments, and alternative channels continue to gain salience vis-a-vis general trade,” Saugata Gupta, MD and CEO, Marico Ltd said during the company’s post-earnings call on Monday.

The Parachute hair oil maker on Monday reported a 4% increase in domestic volumes, as consolidated revenue rose 7% year-on-year. For the quarter ended 31 March, the company had alluded to a “visible uptick” in rural demand albeit towards the end of the quarter.

Gupta expects volume growth trends to "sustain", aided by stable retail inflation, a healthy progress of the monsoon and the government's budgetary allocation towards boosting the rural economy. "That being said, elevated food inflation and spatial distribution of rainfall will be key factors to be monitored,” said Gupta.

A rural comeback in the June quarter

Last week, Vatika shampoo maker Dabur India reported a sequential recovery in volume growth in the June quarter, driven by growth in the rural markets.

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"The FMCG sector has demonstrated a gradual pickup in rural markets in the past two quarters, despite encountering challenges such as unprecedented heat waves and high food inflation. However, timely arrival of monsoons coupled with rural-centric markets with a focus on rural infrastructure, agriculture and employment is a positive for the sector,” MohitMalhotra, Dabur's chief executive officer said during the company's post-earnings call on 1 August. The company’s India FMCG business posted a volume growth of 5.2% in the June quarter.

Several companies that draw a large chunk of their business from rural markets have been hinting at a revival in rural demand inthe latter half of the March quarter. However, several firms sound bullish about a rural comeback in the June quarter.

In the March quarter, NielsenIQ (NIQ) highlighted a “gradual uptick” in rural consumption that surpassed urban consumption in the March quarter, it said in data released in May. Overall, the FMCG industry reported a 6.6% growth in value terms, driven by a 6.5% increase in volumes. It is yet to release data for the June quarter.