Consumption-led sectors have started reporting strong sales numbers for the June quarter buoyed by volume growth which has been backed by revival in consumer demand along with low base effect of the year-ago quarter. Except for textiles and jewellery, most of the consumption-led sectors have seen better growth compared to the previous quarters.

Crisil finds that June quarter should record the fastest growth in three years. “The performance would be in line with our estimate of double-digit growth for the whole of fiscal 2019 with 15 of the 21 key sectors expected to log growth above 10 per cent this time. The pick-up in volumes is expected to have sustained in both consumption and commodity-linked sectors,” said Prasad Koparkar, Senior Director, CRISIL Research.

“This is driven by improving macros, a pick-up in consumer sentiment, and growing rural demand, besides government support to farmers and expectations of a third year of normal monsoon. Inflation, though rising, is not going off the handle, aiding consumer sentiment,” he said.

June quarter of FY18 had not recovered from the impact of demonetisation and was awaiting the roll-out of GST. Apart from jewellery and textiles, de-stocking prior to GST had a low base effect on most of the sectors as de-stocking was happening at the channel level rather than with the consumer.

Recovery

“Recovery in demand has been happening in the past one to two quarters and the demand has been coming mostly from the rural segment,” said Subrata Ray, senior group vice president at ICRA.

According to him, though the monsoons were good last year, demonetisation had hit the rural economy. “Water table has risen with two good monsoon years. Some of the government initiatives like raising minimum support price of different crops also have lifted sentiments in the rural side. Both agricultural income and non-agricultural income were seen rising in the rural side and this has been evident in the rural sales number reported by companies across consumption-led sectors,” he added

The automobile sector is one of the key sectors that have reported strong volume growth. “Most of the auto segments, including commercial vehicles, passenger vehicles, two-wheelers and tractors have reported good volume growth in June quarter. While demand has certainly improved, the low base effect of the last June quarter, which was mired by uncertainties related to GST roll-out, helped growth,” Abhishek Jain of HDFC Securities.

According to him, commercial vehicles have recorded 50 per cent growth in volumes as CV manufacturers including Tata Motors and Ashok Leyland have reported high double-digit growth on the back of higher infrastructure spending and construction activity. “However, commercial vehicles do not reflect the consumer demand as it is driven by infrastructure-related activities,” added Ray.

The two-wheeler segment continued its growth trajectory with 17 per cent volume growth. “Hero Motors reported growth of 10 per cent and Honda around 20 per cent. Despite a high base, Eicher continued its double digit growth at around 22 per cent. Bajaj Auto reported 38 per cent y-o-y growth and 17 per cent q-o-q growth,” said Jain.

Maruti Suzuki, which has 36 per cent of the sales coming from the rural markets, also reported double-digit volume growth. Overall passenger vehicles too have reported a volume growth of around 18 per cent in June quarter.

Tractor sales reflect rural demand and the volume growth has been around 20 per cent in the segment. “Tractors have reported better-than-expected growth. Higher diesel prices and reversal of interest rates were expected to subdue the growth,” added Jain.

“The demand drivers for the industry continue to remain intact, which has aided robust volume growth. A healthy rabi crop output, adequate financing availability, as well as the measures announced by Union Government with an aim of doubling farmers’ incomes by 2022, continue to bolster farm sentiments. In addition to enhanced allocations to schemes aimed at improving irrigation and insurance coverage, the MSP hikes for the current kharif season have been significantly healthier than previous year,” said Anupama Arora, Vice President and Sector Head, Corporate Ratings, ICRA.

Consumer off-take

In the FMCG segment, improvement in off-take has been evident for the past three to four months. “The volumes growth has improved to 7 to 9 per cent from 5 per cent in the past four to five quarters. De-stocking prior to GST

had happened at the channel-level in the year ago quarter. But consumer off-take too has improved this time and rural demand is the main driver,” said Naveen Trivedi, Assistant Vice President of Institutional Equity at HDFC Securities.

HUL, which derives around 50 per cent of its sales from the rural market, reported like-to-like revenue growth of 16 per cent driven by 12 per cent volume growth. It also had a favourable base of the year ago quarter which had recorded revenue growth of 5

per cent. Improvement in demand along with company’s own initiatives like new launches, distribution expansion and digital push aided growth. Most of the FMCG companies are expected to report better volume growth depending upon their exposure to the rural market.

In the consumer durable segment, cooling products like air coolers and air conditioners and derivative products like stabilisers were impacted by an erratic summer resulting in muted consumer off-take. Fans and switchgears continue to enjoy the benefits of lower GST rates, lighting products have witnessed a growth of above 15 per cent with the rising penetration of LED lights. Cable segment too has seen buoyant growth.

“Sales growth in consumer durable segment in June quarter does not fully reflect the revival of consumer demand as it also depends on the housing sector growth, real estate demand and government spend on infrastructure. However, appliances have reported a volume growth of 12 to 13 per cent volume growth,” said Trivedi.

Among consumption-led sectors, apparels and jewellery witnessed a muted growth in June quarter. For jewellery, Q1 is generally a lean quarter. “The muted growth in jewellery sales

is due to weak demand in adornment in the quarter. There was also a high base effect as consumers had preponed purchases in the year ago June quarter fearing higher GST rates from July,” said Trivedi.

Apparels too suffered from the high base effect of year-ago June quarter. “We were offering large quantum of stocks for discounts prior to the roll-out of GST and the retail sales had gone up in the quarter. Now we are seeing a flat like-to-like growth,” said Vasanth Kumar, managing director of Lifestyle International.