Volume growth of FMCG, auto companies at 5-year high

Mumbai, Aug 3: Leading listed consumer goods and automobile firms posted fastest volume growth in at least five years in the April-June quarter, thanks to a favourable base but also driven by improving consumer sentiment, especially in rural India.
Car market leader Maruti Suzuki posted its sharpest growth in five-and-a-half years, while in consumer goods, top placed Hindustan Unilever hit a six-year high. Dabur, Bajaj Auto and Marico grew the most in over five years. Volume sales show the number of products that consumers put in the shopping basket, indicating actual demand.
The favourable base effect was a result of goods and services tax. Sales slowed down for most of the companies ahead of the introduction of GST on July 1, 2017, as distributors and wholesalers didn’t take fresh stock due to uncertainties over rates. Later, lower tax on many consumer items, chiefly groceries, led to price cuts and drove up demand.
While industry executives attributed a host of other factors as well for the strong growth in the first quarter, analysts said the base effect was a crucial element and that they would wait a little more to come up with a conclusion on demand trend.
Nevertheless, the sentiment largely looked positive. “The year has started off well with some green shoots in demand, normal monsoons and trade coming back to relative normalcy after the GST disruptions,” said Sunil Duggal, CEO of Dabur that posted a 21% rise in volume, its best ever, in the past quarter.
“There is every reason to believe that category growths are going to go up,” he added, citing the impact of rains on rural economy and potential stimulus from the government, like the higher minimum support price for crops it recently announced.
These companies had posted double-digit year-on-year volume expansion in the December quarter as well, mainly because of the low base after a demonetisation-induced dip in demand a year earlier. But the growth in the April-June period even outpaced that.
Analysts said the base will weigh in their comparison of corporate performance.
“While we generally consider quarterly volume growth as one of the key parameters, its only logical to also look at two-year CAGR numbers due to disruptions in the base quarters,” said Abhijeet Kundu, vice president at Antique Stock Broking. “However, recovering from a lower base is also a difficult task. Since many companies have managed to do so, it indicates strong demand-led growth.”
The November 2016 demonetisation and the 2017 rollout of GST had upended consumption and stocking patterns, making it difficult for companies and analysts to establish clear trend lines despite healthy sales growth over the past two-three quarters.