Prices head north, but shoppers don’t stop

Companies Across The Spectrum Clock Increase In Sales Volume, Turnover

DESPITE high inflation and concerns of a slowdown, consumer demand is still buoyant. An ET analysis of the top 50 consumer goods and services firms shows sales growth for the June quarter at 24% (year-on-year) — highest in the past one year. The higher revenue growth of companies at an aggregate level is not just due to price increases; companies say that even demand has been in double digits.
    The analysis captured firms whose products and services are directly consumed by the households. The firms in the sample cuts across sectors such as textile, automobiles, consumer durable, FMCG, liquor, airlines, telecom services, footwear and retail.
    Henkel marketing head Ranju Mohan said: "Net sales growth is not just a result of product price increase; there is also volume growth for consumer goods across industries. Demand for daily consumption items has gone up by 5-10% depending on the category."
    Not surprisingly then, Hindustan Unilever reported high volume growth across product categories. While FMCG business grew by 18.8% — about half ofitwasdue to increase in prices —there was more that 8% volume growth. The growth also helped it clock year-on-year net sales growth of 21.1% during the quarter, the highest in over a decade. The company's chairman Harish Manwani has gone on record attributing the growth to double digit increase in consumer spending in both urban and rural India.
    "There has been some adjustment in the consumers' consumption. But overall demand is robust. Our July 1-15 sales data shows purchases from our stores have gone up compared to three months ago,'' says Wadhawan Retail MD Gaurav Modwel. Profitability of cos takes a beating
    THE company operates 200 Spinach, Sabka Bazaar and other grocery stores across India. Auto and two-wheeler companies that are supposedly in trouble have not seen any major demand slump so far. Maruti Suzuki, the largest automaker, managed to clock 20% net sales growth during the quarter at a time when the auto industry is stung by rising interest rates. Though part of the sales growth was linked to higher price tags of automobiles, the firm managed to record 12% growth in volumes.
    Two-wheeler maker Hero Honda reported double-digit growth in volume shipments. This came despite the slowdown in the two-wheeler industry since demand here is intrinsically linked to interest rates that have shot through the roof. In consumer durables, all product categories excluding airconditioners have recorded strong volume growth in the quarter. While airconditioner sales were affected by early onset of monsoon, other appliances including refrigerators and washing machines have clocked better growth rates compared to last year. Profitability has, however, been affected with net profit growth now down to single digits for the companies in the sample. Net profit growth for the 50 companies stood at 8% for Q1 of FY09 compared to 14% growth in Q4 of FY08. This shows consumer goods and services firms are struggling to pass on the impact of cost risepricier raw materials, higher staff cost and interest rates-to the end-consumer.
    Admits LG Electronics director (sales & marketing) V Ramachandran: "Commodity prices have shot up. We have increased prices, but they have not been sufficient to neutralise the impact of high raw material cost, so profitability has been hit. But demand is strong."
    Even if we exclude telecom services, a sector immune to inflation, the overall picture of accelerating sales growth remains intact. Excluding telecom firms, aggregate net sales growth for consumer goods and services firms shrinks marginally to 22%. However, aggregate profit growth actually improves, as RCOM net profit on a standalone basis has declined.
    vivek.sinha@timesgroup.com