Slowdown cloud darkens
Analysts expect a muted performance from both Consumer staples and automobiles sectors
- Published 15.07.19, 12:03 AM
- Updated 15.07.19, 12:03 AM
- 2 mins read
Consumer staples and automobiles — the two sectors worst hit by the slowdown — are unlikely to do well in the first quarter of the current fiscal.
Analysts expect a muted performance from both these industries.
Estimates suggest giants such as Hindustan Unilever Ltd (HUL) could report another decline in its volume growth to 5.5-6 per cent from 7 per cent (the lowest in six quarters) in the preceding quarter and 12 per cent in the year-ago period, with demand taking a hit both in rural and urban India.
Some firms have already sounded a note of caution.
Godrej Consumer Products, the maker of brands such as Cinthol, has said during the April-June quarter it witnessed softer demand in some geographies as it continued to be affected by a general consumption slowdown. The company disclosed that it has recorded volume growth of around mid-single digits.
Discretionary spends, too, have been curtailed with Titan cautioning that weak consumption and high gold prices, particularly in June, have impacted growth in the jewellery industry.
Companies such as HUL have been monitoring the growth rate in rural markets given its relatively low level of penetration compared with the urban areas. Analysts fear there is unlikely to be any good news on this front. Growth in these markets at its peak was 1.3-1.5 times the urban centres. However, it has tapered off and now matches urban growth.
“We expect our consumer sector coverage universe to record lower double-digit revenue growth on the back of mid-single digit volume growth in the first quarter of 2019-20. Our channel check indicates that the demand environment continues to remain sluggish after cautious commentary by companies in the fourth quarter of 2018-19 with rural growth tapering down from its historical high rates. We expect the sectoral volume growth at around 4-6 per cent, while the pricing growth remains critical, which is pegged at 3-5 per cent range in the first quarter,” analysts at Reliance Securities said in a note.
The brokerage expects HUL to clock a volume growth of six per cent during the quarter with others such as Britannia and Dabur reporting growth of five per cent and four per cent, respectively, even as it could be higher for Marico at 8 per cent.
The fortunes of the automobiles sector, too, is not expected to improve compared with the preceding quarter as weak demand could see many players reporting a fall in net profits. Apart from a relatively low demand, the industry has been hit by other headwinds such as the liquidity squeeze after the crisis at IL&FS.
Motilal Oswal expects Tata Motors to report a loss of Rs 1,180 crore on the back of a 15 per cent fall in revenues. M&M and Ashok Leyland could see their bottomlines falling 19 per cent and 45 per cent, respectively.