Demonetisation and its impact on FMCG

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POSITIVE IMPACT: Pending dues flowing in from wholesalers (using old currencies)

NEGATIVE IMPACT: Rural buying power reduced

NUMBER GAME: 35–40% drop in sales expected in the interim

In the aftermath of ‘note ban’ FMCG companies have also seen a drift in sales. Rural markets have accounted 40-45% fall in the revenue for all major FMCG/ retail focused companies. FMCG companies have seen a fall of 20-30% in sales after since November 8th, 2016.

However, most analysts expect that the sales of essential items like soap and toothpaste etc. will remain intact or unhindered but commodities like body cream, special body oils, deodorants, high end shampoos, snacks and fries, chocolates, special enriched food items and ice-cream will be adversely affected.

“There’s demand for these products, but people do not have enough liquidity (money) to buy them,” Abneesh Roy, senior VP & FMCG-retail analyst at Edelweiss Securities told media.

Since rural areas of the country are not much digitalized, they don’t use cards like the way people use in urban areas, the move has certainly stepped in the wrong direction.

“Since most FMCG companies have a large rural portfolio, we may see some dip in their earnings over the next two-three quarters.” he added.

Most equity analysts expect that FMCG sales will be dropped by 35 – 40% over the next two quarters. The only silver lining fact is that many FMCG companies have managed to collect “pending pay-ins” (collection dues) from powerful wholesalers in old Rs 500 and Rs 1,000 notes.

 

 

Wefornews bureau

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