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India or Bharat, who is driving FMCG?
Tue, 10 Feb Pre-Open

The quarterly performance of fast moving consumer good FMCG companies in FY15 has been divergent. Industry behemoth, Hindustan Unilever has blamed the low single-digit growth in its offtake to sluggish demand in urban India. Even Dabur, which has been betting big on urban revival, has concurred that rural growth continues to better urban growth. However the company has managed to grow robustly on the back of its diversified product portfolio. In a stark contrast, biscuit major Britannia has been posting strong volume growth despite having a strong presence in urban markets. Therefore there seems to be a dichotomy with respect to performance in rural and urban India.

However, data sourced from market research firm IMRB has cleared the air of confusion. As per the research firm, urban India has outpaced rural India in both volume and value terms in 2014. While urban India recorded volume and value growth of 4% and 6% respectively in 2014, rural India saw corresponding growths of -3% and 3% in volume and value terms. But the variation in performance across companies has been on account of divergent trends among categories. Home & Personal care has done well in rural India whereas foods witnessed better growth in urban India. Therefore HUL, that derives a lion's share of 78% from home & personal care, has been hit by flat consumption of these two categories in urban India. Britannia, on the other hand, has been the beneficiary of strong pick-up in food demand in urban India.

The size of demand from urban markets continue to be larger that rural India. Although rural India holds huge potential, factors such as weak monsoon, no major increase in minimum support price for crops as well as wages under government sponsored schemes can curtail disposable income and dampen demand in the near future. Therefore urban consumption is likely to fuel the recovery in demand for consumer goods. Going ahead, FMCG companies such as Godrej Consumer Products and GlaxoSmithKline Consumer Healthcare expect consumption of personal care products to gain momentum in urban India. Even Dabur has shifted focus on urban India and is increasing reach in the urban centric chemist channel to benefit from a revival in demand.

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