 | « Back to article | Print this article |
Slowdown clouds darken over India Inc
Namita Patel says she hates hopping around stores for the best bargain. "I had better things to do than waste time on such things," says the Mumbai-based executive.
But what was considered a waste of time earlier is now a necessity, as Patel is forced to hunt for bargains to offset rising prices.
Patel is not alone, as a Nielsen study shows over 39 per cent consumers are looking for better deals while shopping compared to less than 30 per cent a year ago.
That's bad news for Indian companies, which are already facing a margin squeeze, with operating profit margins and net profit margins in the fourth quarter of the last financial year shrinking by 44 basis points each year-on-year.
Click NEXT to read further. . .
Slowdown clouds darken over India Inc
A Crisil Research report expects more margin pressure in the current financial year.
HDFC Bank managing director & chief executive officer Aditya Puri puts things in perspective.
"Companies will have to take a decision whether they want to maintain market share and sacrifice margins to an extent. In most businesses, you don't give up market share. I expect that there will be some pain", he says, adding when there is uncertainty, investments do not happen.
Also, companies will have to review their inefficiencies, as cost of funds will rise.
What may pinch India Inc hard is that sales growth, which has been robust so far, is also under pressure.
Click NEXT to read further. . .
Slowdown clouds darken over India Inc
Listen to Maruti Suzuki Chairman R C Bhargava. Dealers of the country's largest car maker have stock for over 28 days.
When sales were robust, most dealers did not have more than a week's inventory. Sometimes it went down to even zero.
Such huge stock with dealers of a company which believes in just-in-time inventory is a clear indication that consumers are not buying cars as much as expected.
"It's clear now that we can't sustain 30 per cent sales growth like last year. The industry will be happy with 10-12 per cent.
"The increase in interest rates on car loans and the sharp increase in oil prices have led customers to postpone buying decisions," says Bhargava.
Click NEXT to read further. . .
Slowdown clouds darken over India Inc
The mood in consumer-facing sectors like fast moving consumer goods, consumer durables, automobile and modern retail -- that reflect the first signs of recovery or slowdown -- is no different.
Most companies had made demand and production projections based on 9 per cent gross domestic production growth.
Most of them are now going back to the drawing board as few expect the figure to cross 7.5 per cent.
Modern retailers say the signs of slowdown are there but limited to certain sectors for the time being.
Click NEXT to read further. . .
Slowdown clouds darken over India Inc
Future Group founder and chairman Kishore Biyani says while FMCG is doing fine, air conditioner and television sales have slowed.
AC sales grew 35 per cent last year. The group will be happy if they can grow at half the number.
TV sales growth is expected to slump to 15 per cent compared to 20-30 per cent last year. But Biyani is hopeful.
"My assessment is that the slowdown is being felt in some areas such as cars and some consumer durable items. It has not spread to other goods," he said.
Click NEXT to read further. . .
Slowdown clouds darken over India Inc
Consumer electronics companies are worried. Ajay Bajaj, business head of the AC division of LG Electronics, says the company has seen almost zero growth so far this year compared to 20 per cent last year.
His counterpart in the TV business, Rohit Pandit, says inflation has hit sales as consumers can always postpone buying a TV.
But some companies see a silver lining in rural areas, where demand, driven by agricultural incomes, continues to be robust.
No surprise, therefore, that companies such as Hindustan Unilever added as many rural outlets in the last one year as they did in five years prior to that.
Click NEXT to read further. . .
Slowdown clouds darken over India Inc
Videocon Group chairman Venugopal Dhoot is banking on his strong rural distribution network to achieve 20 per cent growth.
"With money in the hands of consumers at the bottom of the pyramid, there is no slackening of demand. They are buying everything from washing machines to TV. "
He says products his company sells are insulated from the high interest costs of consumer finance.
"While interest rates on consumer finance have risen, only 10-15 per cent of the company's durables are bought through such schemes. The rest is in cash", he says.
Click NEXT to read further. . .
Slowdown clouds darken over India Inc
Not everybody shares this optimism. FMCG companies say they are facing margin pressure even after increasing prices by 5-20 per cent.
If raw material prices go up further, they will be forced to raise prices, which will hit volumes.
A leading soft drinks company says it will be happy if sales in the carbonated drinks category grow 12 per cent this year compared to 20 per cent last year.
"We have had no option but to increase prices by 15-20 per cent to absorb the increase in freight costs (due to fuel price increase) and the higher cost of PET bottles.
Click NEXT to read further. . .
Slowdown clouds darken over India Inc
"Our products are in the discretionary spending category and sales will be hit if prices rise further," said a top executive of the company.
Others are in a wait-and-watch mode. Marico says there has been softening of demand. Chairman Harsh Mariwala says he is keeping his fingers crossed.
"We increased coconut oil prices two months ago. But many consumers are still paying the old prices as distributors and retailers have a lot of earlier inventory," he says.
Click NEXT to read further. . .
Slowdown clouds darken over India Inc
Mariwala, however, says sales have not been impacted in edible oils (Saffola), as it has become an essential item.
Automobile companies are the most voluble and there is a near consensus about the darkening slowdown clouds.
Jnaneswar Sen, senior vice president (sales and marketing), Honda Siel Cars India, says: "Dealers are telling us that the demand is no longer strong.
"But we are going ahead with the launch of Brio around October. At least there is some growth," he says.
Click NEXT to read further. . .
Slowdown clouds darken over India Inc
TVS Motors chairman and managing director Venu Srinivasan says the slowdown has started making its presence felt and new capacity addition in the industry may take a hit.
Can the steel industry, a key raw material supplier to the auto sector, be far behind?
Arvind Parakh, director (strategy and business development), JSL, India's largest stainless steel maker, says there are uncertainties in the short term.
He said steel demand, which should grow at least one to 1.5 times GDP, was nowhere where he would like it to be.
He also sees some slowdown in implementation of new projects as interest rates are high.
Click NEXT to read further. . .
Slowdown clouds darken over India Inc
Still, not everybody expects the slowdown to last. Maruti's Bhargava, for example, expects the worst to be over in four to six weeks as the impact of high interest rates and oil prices wears off.
Bankers are not so optimistic, as most see companies shelving capital expenditure, preferring to sit on cash.
The play-safe approach and the sobering outlook have been reflected in the benchmark stock market indices.
The Sensex and the Nifty have been among the worst performers among their Asian peers since the beginning of this financial year.
(Additional reporting by Raghavendra Kamath and Viveat Susan Pinto)
