Volume Growth of FMCG, Auto Cos at 5 year High

Leading listed consumer goods and automobile firms posted fastest volume growth in at least five years in the April-June quarter, thanks to a favourable base but also driven by improving consumer sentiment, especially in rural India.

Car market leader Maruti Suzuki posted its sharpest growth in five-and-a-half years, while in consumer goods, top placed Hindustan Unilever hit a six-year high. Dabur, Bajaj Auto and Marico grew the most in over five years. Volume sales show the number of products that consumers put in the shopping basket, indicating actual demand.

The favourable base effect was a result of goods and services tax. Sales slowed down for most of the companies ahead of the introduction of GST on July 1, 2017, as distributors and wholesalers didn’t take fresh stock due to uncertainties over rates. Later, lower tax on many consumer items, chiefly groceries, led to price cuts and drove up demand.

While industry executives attributed a host of other factors as well for the strong growth in the first quarter, analysts said the base effect was a crucial element and that they would wait a little more to come up with a conclusion on demand trend.

Nevertheless, the sentiment largely looked positive. These companies had posted double digit year-on-year volume expansion in the December quarter as well, mainly because of the low base after a demonetisation-induced dip in demand a year earlier. But the growth in the April-June period even outpaced that.

Analysts said the base will weigh in their comparison of corporate performance. The November 2016 demonetisation and the 2017 rollout of GST had upended consumption and stocking patterns, making it difficult for companies and analysts to establish clear trend lines despite healthy sales growth over the past two-three quarters.

Companies, however, are confident on sustained growth in demand. With prices dropping for household and personal care consumer goods after the introduction of GST in July 2017, and a further cut in rates in November, most companies are witnessing their overall revenue entirely driven by volumes. A good monsoon season last year after below-average rains in two consecutive years also helped boost demand in rural India.

Over the past decade, sales of branded daily-need products have increasingly relied on the vast rural hinterland, home to about 80 crore people whose purchasing behaviour depends on farm output. Annual monsoon rains that help irrigate India’s crops play a vital role in shaping buying patterns in Asia’s third-biggest economy.

Maruti Suzuki saw 25% volume growth during the recent quarter. New model launches and strong buying in the rural areas helped the local unit of Japan’s Suzuki Motor dispatch 4.58 lakh vehicles, the highest ever in its history.

The strong rural economy always had a direct co-relation with the country's two-wheeler segment, especially motorcycles. Bajaj Auto’s domestic sales registered their best growth in 32 quarters, thanks to strong demand for mass market motorcycles in rural areas.

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