FMCG firms see spike in rural sales

If there was one lot happy with the Budget announcements on Monday, it was consumer goods companies. The rural and agriculture push is likely to drive sales of companies after two years of relatively subdued growth because of poor monsoon and distress.

Fast-moving consumer goods (FMCG) sales in rural areas grew 10-11 per cent annually in the past two years, compared with 15-18 per cent growth earlier.

The consumer durables and electronics segment was worst hit with rural sales growth coming to a standstill.

Apart from improving credit and crop insurance to farmers, the government proposes to introduce new schemes for animal welfare, rural electrification, interest subvention and a unified e-platform for farmers. The highest-ever allocation for the rural employment scheme, MGNREGS, at Rs 38,500 crore tops such initiatives.

Consumer goods companies get 30-50 per cent of sales from rural India, where demand has been hit by consecutive years of rain deficit. With more money in the hands of farmers, experts expect rural demand and consumption to go up.

Saugata Gupta, managing director & chief executive officer (CEO), Marico, maker of Saffola and Parachute coconut oil, said "The focus on broad-based growth with a thrust on rural, agriculture & farmer welfare augurs well for FMCG companies. Overall, the Budget attempts to drive an inclusive growth focusing on rural economy which is a positive for companies."

MISSION HINTERLANDS

• Move comes at a time when rural areas have suffered  consecutive years of drought and unseasonal weather
• Thanks to this, rural sales growth of consumer goods firms has declined from annual levels of 15-18% to 10-11% in the past two years
• The slew of measures announced in rural and agri sectors expected to give rural sales growth a fillip
• This is critical because of a third of sales for consumer goods companies comes from rural areas
• For some firms such as Hindustan Unilever, Dabur and Videocon, the percentage of sales coming from rural areas is higher; estimated at close to 50%

Sunil Duggal, CEO, Dabur India, a company which derives close to half of its domestic revenues from rural areas, said "The focus of the Budget this year has been on farmers and people in the hinterlands. This will help millions of farmers recover from the rough patch they have been going through and go a long way in boosting confidence and fuelling consumerism in rural India."

Aditya Agarwal, director, Emami, said "The focus on the infrastructure and rural sectors, which are the backbone of the economy, will give an impetus to companies operating in the consumer space. Many of them have turned to rural areas in the last few years. There will be a positive impact as a result of the measures announced."

Anirudh Dhoot, director, Videocon Industries, said "In my view, the Finance Minister has been balanced with his focus on the rural and infrastructure sectors. The distress factor in the rural economy was too high. An improvement there benefits companies straightaway."