FMCG companies are a hopeful lot as volume growth and margins pick up after the past few quarters of slowdown in discretionary products. But Hindustan Unilever is still waiting for better days as uncertainty about rural demand remains a cause of worry.

“It is basically price cuts which have translated into volume growth and one cannot say whether this will be sustainable. Even in categories like personal products, the value growth is at 4-5 per cent, which is not a dramatic change. We do not see any definitive trends in consumption pick-up and now it depends on how the rural markets pan out,” said Sanjiv Mehta, CEO, HUL, while announcing the company’s fourth quarter results.

While rural growth has been faster than urban growth, the pace of growth in the former has fallen to 8 per cent from 9-15 per cent over the past few quarters with less soaps and shampoos being sold in the hinterland as indicated by analysts tracking the FMCG sector.

Farmer suicides and uncertainty about monsoons are factors which could work against the rural markets which had seen sustained FMCG demand in the past.

However, growth uptake in urban markets is likely to bail out these companies as they look forward to better quarterly performances ahead.

“While we are confident about GDP growth, there could be dampening in rural demand due to unseasonable rains.

“But once urban growth picks up, discretionary spending will come back. We see gradual improvement especially in the urban markets while rural consumption trends will depend on the performance of the monsoon,” said Saugata Gupta, MD & CEO of Marico.

More than taking price cuts, Marico believes in building prototypes of its big-ticket brands like Saffola in smaller SKU’s (stock keeping units) to increase demand in the urban markets.

Godrej Consumer Products is also hopeful of urban growth leapfrogging, especially in the home and personal care segment where it has brands like Cinthol and Goodknight.

“While FMCG recovery will be slow and gradual, we see urban growth picking up at 2 per cent this quarter after witnessing negative growth in the home and personal care segment where we operate as the Nielsen numbers suggest,” says Vivek Gambhir, Managing Director, Godrej Consumer Products.

However, overall consumer sentiment in the urban markets is expected to improve.

“FMCG consumption generally follows the uptick in consumer sentiment with a lag of two quarters.

“The same can be seen in the FMCG growth rates where there is slight revival from 8 per cent to 10.3 per cent between the fourth quarters of last year and this year.

“The fall in inflation is expected to have an impact on disposable income over time, but it will still take time for the sector to be restored to perceptible and sustainable growth,” says Piyush Mathur, President Nielsen.

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