Good times may be finally around the corner for consumer goods, over three months since the Goods and Services Tax system got a complete revamp and items ranging from daily necessities to small cars saw a significant drop in GST rates.
Comments from consumer-facing companies in recent days indicates a steady pick-up in sales in the October-December quarter. Rural markets were already getting a lift from a good monsoon season. But even urban markets, which had seen tepid growth for several quarters, may be in for turnaround now, with the reduction in GST making products more affordable.
“During the quarter, early signs of demand recovery were witnessed, aided by GST rate revisions,” said Dabur India. Once distributors and retailers had done liquidating their earlier higher priced inventory and as trade stabilised, consumer sentiment improved in both urban and rural areas. However, rural demand has continued to outperform that in urban, it said.
Hair oil maker Marico said demand trends in the sector had been steady in the October-December quarter, with underlying volume growth in the India business in high single digits, a slight improvement on a sequential basis. Value-added hair oils, in particular, grew over 20 per cent, while premium personal care continued to scale ahead of aspirations.
“We remain optimistic about a gradual improvement in consumption in the quarters ahead, supported by easing inflation, lower GST rates driving affordability, MSP hikes, and a healthy crop sowing season,” said Marico, which expects consolidated revenue to grow in the “twenties” and operating profit growth touching “double digits.”
In September, the GST regime got a complete revamp. The simplified structure focused on two main tax slabs of 5 per cent and 18 per cent, apart from a special 40 per cent tax rate for luxury and sin goods.
ALSO READ
- Tobacco products, pan masala hit with new excise duty, cess: How much will a cigarette pack cost now?
- ‘If you can’t give clean air, at least cut GST’: Delhi High Court pulls up Centre over 18% tax on air purifiers
- IndiGo stock gets punished after ₹118 crore GST notice, bomb threat
- GST reforms: What the new two-rate system means for your business
- Why are more Indians buying used SUVs? New auto report reveals REAL reason
This revamp ensured most of the fast moving consumer goods saw price cuts, as did small cars and two-wheelers among other things. While it was effective September 22, the market took a few weeks to stabilise, with the traders having to liquidate existing stock and re-stocking fresh stock with the reduced GST.
Value retailer V-Mart said its sales in the quarter rose 10 per cent year-on-year in October-December. Another retailer V2 Retail reported a 57 per cent jump in standalone revenue in the third quarter, as it continues to expand in tier 2 and tier 3 markets, cashing in on consumption demand. Elsewhere, Avenue Supermarts, the promoter of hypermarket chain Dmart, said its sales in the quarter rose 13 per cent from a year ago.
Analysts say consumer goods demand is picking up steadily on the back of normalisation of GST transition and better winter season.
“FMCG demand showed steady improvement in the third quarter. GST-related transient disruptions, such as inventory destocking and packaging material unavailability were largely normalised post October,” said Amit Purohit of Elara Capital.
As per his estimates, most FMCG companies are expected to report a revenue growth in the 4-11 per cent range. Marico, is likely to report a near 25 per cent growth, and Titan 31 per cent.
“Despite early Diwali this year, which saw some shift in sales in second quarter, third quarter growth saw recovery due to multiple macro tailwinds, which continues to point towards improvement in consumption demand,” said Nomura analyst Mihir Shah.
Further, companies that have higher portfolio of winter-centric portfolio are likely to benefit given the harsh winter so far the analyst said.
He sees the December quarter being one of two halves, with October to mid-November continuing to see an impact from GST-led transition and sales improving as GST-led lower priced stock entered the market. The full impact of the GST cuts is likely to be seen from the January-March quarter, he added.
Notably said Shah, “with the GST rate cut to just 5 per cent for most daily consumption categories and the differential between tax paying and non tax paying companies narrowing materially, we expect a shift from unorganised to organised segments of the economy to see an acceleration.”
Nitin Gupta of Emkay Global Financial Services, meanwhile, feels its the food companies that are better placed, with growth likely in double digits in the third quarter.
“The festive season set in earlier, with benefits from GST cuts disrupted by GST transition in trade. Given the fast inventory turns for foods, growth accelerated over October-November with retailers restocking inventory. However, home and personal care categories have seen gradual disruption, along with limited re-stocking,” opined Gupta.
He is also expecting FMCG companies to report a revenue growth in the 4-13 per cent, with Marico likely reporting a 28 per cent revenue surge, aided by strong pricing-led growth in the Parachute hair oil portfolio.
Growth trends ahead will be key, added Gupta, who pointed that multiple tailwinds are in place.
