Debunking the myth that weak monsoons lone can be responsible for affecting the fast moving consumer goods (FMCG) growth in the rural areas, Sunil Duggal, CEO, Dabur said the rural demand has been lower over the last two quarters.
According to him, the correlation between rural income and monsoon is very direct. But the same with consumer demand is not always true.
"We cannot be completely insulted from the impact of a bad monsoon. But it doesn't alter the dynamics of consumption to a very great degree. Likewise a great monsoon also doesn't accelerate demand, there are host of other conditions required to stimulate or depress demand," he added.
El Nino, the weather phenomenon occurring in Pacific Ocean, is likely to drive away the rain clouds in India and put the monsoon and kharif harvest at risk. DS Pai, director of long range forecast, India Metrological Department told CNBC-TV18 that there is a good probability of El Nino during monsoon. However, "El Nino did not have much effect on rain in the past," he added.
Speaking to CNBC-TV18 regarding the possible El Nino effects in India that may lower the quantum of rainfall, Duggal said the rural demand is expected to be lower than the urban demand going ahead as urban demand has picked up, though mildly.
He believes high inflation has dampened demand and has taken off the sheen of much of the stimuli that has happened. "But the demand at this point in time is quite low in rural areas. On the other hand, we are seeing a bit of revival in urban and so, it is balancing out," Duggal added.
He expects the volume growth in FY15 to be at the lower end of 8-12 percent.
Earlier, on CNBC-TV18, Varun Lohchab, director, CIMB had also said that the FMCG growth in rural area is now slowing down after a robust growth in the past two years .
"Company managements, while accepting the slowdown in urban cities, were bullish on rural sales. However, this no longer is the case," he added.
The future of the sector looks bleak as Lochab expects any revival to return to the sector only in FY16 and not in FY15.
"There are still risks to the downside. The consumption will pick up only 3-4 quarters after the GDP picks up," he further added.
However, several FMCG companies including ice cream makers and dairy suppliers have been building up inventories fearing El Nino backlash.
The first monsoon forecast is likely to come in the last week of April.
(Posted by Anjali Agarwal)
Dabur India stock price
On April 03, 2014, at 14:10 hrs Dabur India was quoting at Rs 183.55, up Rs 1.00, or 0.55 percent. The 52-week high of the share was Rs 190.00 and the 52-week low was Rs 137.00.
The company's trailing 12-month (TTM) EPS was at Rs 3.69 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 49.74. The latest book value of the company is Rs 9.15 per share. At current value, the price-to-book value of the company is 20.06.
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