Q1 Results: How Consumer Goods Makers Are Likely To Fare In Pandemic-Hit Quarter

The worst impact of the Covid-19 lockdown on FMCG firms’ earnings will likely be seen in the quarter ended June.

Newly made fortune cookies cool in a bucket at a factory in San Francisco, California, U.S. (Photographer: David Paul Morris/Bloomberg)
Newly made fortune cookies cool in a bucket at a factory in San Francisco, California, U.S. (Photographer: David Paul Morris/Bloomberg)

The worst impact of the Covid-19 lockdown on consumer goods makers’ earnings will likely be seen in the quarter ended June even though these were part of essential services.

Commentary by companies, brokerage forecasts and BloombergQuint’s conversations with distributors—the lifeline of the sector—revealed that demand for food staples, biscuits, chocolates, soaps, hand wash, detergents and home disinfectants rose or was stable. Demand for other personal care produces including moisturisers and make-up, especially in the premium category was severely impacted .

That will reflect in the quarterly results of the sector with Britannia Industries Ltd. reporting numbers on Friday. India imposed the world’s strictest lockdown, completely shutting businesses barring essentials for nearly two months till May 3 before starting to ease restrictions. Demand collapsed in the economy that stares at its first full-year contraction in more than four decades.

Distributors BloombergQuint spoke with said demand from rural India was better compared to urban because of ease of movement as there are fewer Covid-19 cases outside large cities that have emerged as the biggest hotspots for infections so far.

Due to the sowing of the kharif crop, a lot of workers found employment in fields, increasing the rural spending power during these months, a distributor told BloombergQuint over the phone. This was boosted by the cash transfer, rural employment schemes and free grain provided by the government in its limited relief packages.

Company Outlook

Marico Ltd., the maker of Parachute hair oil, in its pre-earnings quarterly update said Saffola edible oils posted healthy volume growth, partly attributable to increased in-home cooking and consumption. The foods business, it said, continued its good run.

But premium personal care categories including serums, skin care and male grooming products remained under significant stress, Marico said. The Mumbai-based company expects its India business volume to decline.

Godrej Consumer Products Ltd. witnessed a similar trend. In its update for April-June, the maker of Good Knight mosquito repellent said while it witnessed strong momentum in the hygiene category, demand for hair colours and air fresheners was muted.

Sanjiv Mehta, chairman and managing director at Hindustan Unilever Ltd., India’s largest maker of fast-moving consumer goods, told shareholders last month at the company’s annual general meeting that its beauty, skin care, hair care and ice cream businesses were impacted in April and May.

Dabur India Ltd., too, after announcing its January-March results, told investors that it expects its revenue from operations and net profit to take a hit of Rs 400-450 crore and Rs 60-80 crore, respectively, in the quarter ended June.

Analyst Forecasts

Emkay Global Financial Services, in a pre-earnings report, said it expects the performance of household personal care sector to be mixed as some players would benefit from higher usage of hygiene and healthcare products. FMCG companies, it said, will see impact on numbers because of restrictions on manufacturing and sale of non-essential products in April and a slower recovery since then.

The lockdown also broke supply chain, impacting distribution system as salesmen were hesitant to go to stores to take orders. That eased after many restrictions were lifted starting June.

Motilal Oswal Financial Services, in a preview note, said near-normalcy was witnessed in June in several staple categories with some of the discretionary demand surprisingly bouncing back. But is cited caution if this sustains given the worsening situation as the count of Covid-19 cases mounts in several parts of the country, especially large urban clusters.

It also forecast healthy rural demand in April-June and the rest of the financial year due to healthy rabi crop cash flows, timely sowing, good monsoons and a sharp increase in allocation to rural jobs guarantee scheme.

According to a Nielsen India report, FMCG industry’s sales value, a combination of volume and prices, declined 34% year-on-year in April alone. The mom-and-pop stores channel saw a 38% contraction in value, while supermarkets and hypermarkets registered a value growth of 5% during the first full month of the lockdown. That will have an impact on the full-quarter earnings.

The market research cut FY21 growth forecast for the sector to 5-6% from 9-10% earlier.

BloombergQuint’s conversations with distributors offered insight into how demand moved in some of the states.

Punjab: Demand for food and hygiene items remained strong in April and May. But it tapered off in June as lockdown restrictions were eased.

Gujarat: Food consumption remained strong but sale of personal care products such as shampoos and moisturising creams fell. Rural demand remained strong.

The general trade through distributors and small retailers saw better offtake during the quarter as lockdown impacted footfalls at malls where hypermarkets and supermarkets. Mom-and-pop stores went the extra mile to deliver groceries to people at their doorstep.

Maharashtra: Sales of biscuits and edible oils remained strong in the first two months of the quarter as people stayed indoors and stocked up. Consumption of sanitisers and hand washes spiked. As people have not yet run out of what they stocked up in the first phase of the lockdown, overall demand is yet to pick up in June.

Odisha: Sanitisers and immunity boosting products like chyawanprash were in high demand. Demand for detergents was strong during the quarter, but skin care products suffered.

Goa: Consumer goods saw 50-60% drop in demand as there were no tourists in the state that is highly dependent on tourism. Consumption of smaller stock keeping units saw a bigger impact than larger packs.

Lessons India’s FMCG Distributors Are Learning From Covid-19 Disruptions