Farmers aren’t the only ones praying for a good monsoon this year. The country’s leading FMCG firms, too, are banking on a normal monsoon for a recovery in demand and easing of margin pressures. As the makers of consumer staples—from soaps to biscuits—continue to grapple with the impact of steep commodity inflation and subdued volume offtake, a good harvest in the upcoming monsoon season could help in their revival.
Take, for instance, Hindustan Unilever (HUL), which is witnessing signs of commodity prices peaking. In the December quarter, HUL and other winter personal care product makers suffered from subdued sales due to a mild winter. This, preceded by a prolonged commodity inflation, has resulted in poor volume growth at least in the past five quarters, and has kept margins under pressure. Sanjiv Mehta, CEO & MD of HUL, says the FMCG industry has witnessed unprecedented inflation across a wide basket of commodities, led by supply side issues, this year. “Commodities remain at an elevated level when compared to long-term averages. This is evident when you look at inflation from a two-year lens. Commodities such as crude oil, soda ash, [and] food ingredients are seeing close to 100 per cent inflation when compared to the December quarter of 2020.”
This has led to HUL, Nestlé and other firms resorting to price hikes or reduction in grammage, which in turn impacts volumes and top line. But given the steep rise in commodity prices, even double-digit price hikes—like what HUL went in for in December—failed to make up for the rise in costs, leading to margin pressures. That may ease with a normal monsoon and a good harvest—leading to softening of prices of agri-commodities and higher incomes for rural households, say experts.
Saugata Gupta, MD & CEO of consumer products major Marico, says green shoots are visible in the rural market as demand has slowly improved since early-2023. “We have a slightly lower exposure in the rural market compared to most FMCG companies. But the rural [market] is a long-term strategic growth driver for us. We believe there will be some improvement [in rural demand] but its extent will depend on the monsoon,” he says.
Analysts, however, are doubtful about the prospects of a normal monsoon this year. According to Abneesh Roy, Executive Director of Nuvama Institutional Securities, the advent of El Niño may jeopardise monsoon distribution, impacting yields. “India has had four consecutive years of normal monsoons, which itself reduces the chance of a normal monsoon this time.”
Suresh Narayanan, Chairman & MD of Nestlé India, says his company managed to grow its volumes in high single digits till September 2022. But its volume growth faltered in October-December as it had to resort to significant price hikes. “It is now expected that India will have a bumper wheat crop and that will offer some respite,” he says.
But industry experts remain cautious as the Met department has predicted a harsh and early summer, and this may impact the wheat crop. “Overall, we expect margin recovery for most leading players, while the spread of the monsoon and impact of El Niño remains a concern,” says Roy. FMCG players, however, will be praying that the rain gods smile benevolently on them.
@arndutt