ET Intelligence Group: Rural India is quickly climbing the consumer mobility ladder, and a raft of companies as diverse as Hindustan Unilever, HeroMotoCorp, Shriram Transport and L&T Finance are benefiting from the collective ascent.
For many consumer companies selling sturdy bikes, cookies, snackfoods and savouries, or personalcare items, Indias traditionally under-served villages are becoming increasingly more exciting for the growth opportunities they offer. Of late, urban markets have often trailed rural India in consumption growth, a trend the managements at top consumer and financing companies have confirmed after the March quarter earnings.
Hindustan Unilever, in its recent conference call with analysts, sounded optimistic on improvement in rural demand. Agricultural sales for HUL account for 35-40 per cent of the total value. This is higher in volume terms. In the past two quarters, HUL has recorded volume growth of 11 per cent in each quarter.
CEO Sanjiv Mehta told analysts in the post-earnings conference call that the company “sees a pickup in rural demand across the country: Not consistently everywhere, but in many places, sales are growing faster than urban. At some places, it is growing on a par with urban, and in some places, its still a shade less than urban: But clearly, demand has picked up.”
Among the reasons for higher rural expenditure are farm loan waivers, aggressive land purchase programs for roads, increased budgets for rural employment programme, rising penetration of NBFC in rural areas and better green crop prices. Furthermore, higher minimum support prices could further enhance farm incomes.
“Rural …. is growing month-onmonth for us. This is giving us very good dividends and also fulfilling a weakness that we had as far as our portfolio was concerned, as far as our geographic spread was concerned.” The entire Hindi belt is growing at a faster pace for Britannia. For instance, Rajasthan, MP, and UP is rising 27 per cent, 15 per cent and 15 per cent, respectively.
The story is similar at Godrej Consumer. The companys rural sales volume grew 7-8 per cent in the March quarter as compared with 2-3 per cent in urban areas. It is estimated that average per capita spending on FMCG products of Indian rural and urban stood at $16 and $64, respectively.
Even Indias largest two-wheeler company has shown marked improvement in its sales volumes. Ashok Bhasin, head, sales at Hero MotoCorp, told analysts that “rural volume growth has been 200 to 300 basis points higher than the average national industry average of 15 per cent”.
Hero MotoCorp derives nearly half of its sales from rural market. The motorcycle volume grew 13.7 per cent in the FY18 as compared with 2.2 per cent in the past four years.
States such as UP, Maharashtra, Karnataka and Punjab have announced farm-loan waivers of ?1.01 lakh crore, of which ?52,700 crore was budgeted for FY18. Also, states have increased their capital expenditure 18 per cent annually in the past three years. Additionally, increasing NBFC penetration has been a significant enabler for boosting consumption in rural areas. A senior official at Indias leading motorcycle maker said availability of financing is turning into a substantial enabler for two-wheeler sales growth.