The Hindu Business Line : FMCG sector looks to rain gods

"For an FMCG company, the well being of a rural economy plays an important role as almost 50 per cent of topline comes from rural India. Poor monsoon will, therefore, have a negative impact."

New Delhi , July 18

THE FMCG industry is probably looking skywards to detect signs of the monsoon clouds. The reasons are clear. A good monsoon this year has become extremely crucial for this industry, especially for industry majors such as HLL, Marico, Dabur India and even milk cooperatives such as the Gujarat Cooperative Milk Marketing Federation (GCMMF).

Sample this. The Marico Chairman, Mr Harsh Mariwala, says raw material prices for edible oils have already gone up by eight per cent over the last one week in the absence of rains and if the monsoon does not arrive soon, this uptrend in input costs will become even more pronounced.

And even though milk production and procurement have not taken a hit as of now, GCMMF's marketing chief, Mr R.S. Sodhi, says milk commodity prices have shown about five per cent increase over the last fortnight.

The story is almost the same for other FMCG companies. Says the Dabur India CEO, Mr Sunil Duggal, "For an FMCG company, the well being of a rural economy plays an important role as almost 50 per cent of topline comes from rural India. Poor monsoon will therefore have a negative impact on FMCG players though with a time lag."

Last year's monsoon was timely and fairly widespread; yet many parts of the country remained parched. Another year of well-timed and evenly distributed monsoon will be a boon not only for the farmers and the agricultural community but also for much of the consumer goods industry, say analysts.

While HLL did not respond to queries by Business Line on the possible impact of monsoon, analysts said good monsoons would be crucial for HLL, which is battling declining margins across all categories. Says Mr Deepak Singh, Vice-President of market research agency TNS, "Despite a good monsoon last year, the FMCG sector did not see expected gains as the surplus income was diverted to other sectors. However, a bad monsoon this year may hit FMCG to some extent, but is unlikely to impact much."

But won't a further pressure on input costs mean a greater margins squeeze and perhaps another round of price cuts? LG Care's sole licensee in India Mr Vijay R. Singh feels otherwise.

"I don't think there will be another round of price cuts because already volumes far outpace value in the FMCG industry. But I do think delayed monsoons will have an adverse impact on toplines."

And while most FMCG companies pray for rains, there are some who think the weather couldn't be better for this time of the year!

Companies selling soft drinks and ice-creams, in particular, want the monsoon to take a bit longer to arrive.

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