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India play hurts multinational firms' global revenues

Viveat Susan Pinto / Mumbai 31 Oct 16 | 12:43 AM

Image via Shutterstock

Multinational corporations (MNCs) such as Unilever and Coca-Cola are worried about the less-than-expected growth in emerging markets, specifically India, once their darling.

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In recent weeks, other firms, too — Nestle, RB and Danone — have expressed concerns over growth in emerging markets.

Atlanta-based Coca-Cola said last Wednesday its volume growth in India declined 4% as consumers in emerging markets were spurning fizzy drinks, much like their counterparts in the developed nations. Unilever flagged off growth concerns in India a fortnight ago, as the market remained subdued.

Amazon, the e-commerce giant with its headquarters in Seattle, on Thursday said investments in India would impact its international margins, indicating just how competitive the domestic market was. 

The statement came as Amazon reported its lowest international retail margins for the third quarter as the domestic market, where the e-commerce giant is fighting a stiff battle with local rival Flipkart and others, remained a drag.

“We are excited about the investments we continue to make in India and the initial response it has received from both customers and sellers," Amazon’s Chief Financial Officer Brian T Olsavsky said on Thursday, assuaging investor concerns.

The Rs 2-lakh crore e-commerce market was not the only segment with stiff competition. 

The fast-moving consumer goods (FMCG) market, valued at Rs 3.2-lakh crore, was also increasingly getting competitive for incumbents such as Unilever that have been in the country for nearly 128 years.

“Our market conditions have softened in India," Andrew Stephen, Unilever’s investor relations head, said on October 13. “Volume (growth) in skin cleansing has suffered from price increases." 

He highlighted pressure points in a market that gives the world’s second-largest consumer goods company around 7 to 8% of its turnover.

On Wednesday, Unilever’s Indian subsidiary reflected this trend, reporting a negative volume growth in the September quarter — its lowest in seven years. This came as weak demand and price increases combined to take a toll on sales. 

Sanjiv Mehta, managing director and chief executive officer, Hindustan Unilever (HUL), admitted the second quarter was tough. “Commodity deflation is behind us and we have to face market realities," he said. “Price hikes are inevitable in an inflationary environment, but a virtuous cycle will set in. The rains have been good this year and while one year’s rains may not be enough, there are other triggers too such as the government’s rural and overall infrastructure push, which should help in improving the demand environment."

Other FMCG CEOs and veterans struck a cautious note though. 

“I remain cautiously optimistic about the growth prospects of FMCG in the near-term," Marico’s Chairman Harsh Mariwala said ahead of the company’s second-quarter results. 

On Friday, it became apparent why Mariwala, a sector veteran, was measured in his outlook of the market. 

Marico’s overall volume growth for the September quarter was 3.5% only, with the domestic business, which gives the company around 78% of its revenue, reporting a 3.4% volume growth for the period under review. 

The company blamed price increases in Parachute, its popular hair oil brand, and stressed rural demand for low volume growth during the quarter, adding that the second half would be better. 

Dabur, another FMCG major, reported only a 1% increase in consolidated revenue for the September quarter. The India business, which gives Dabur over 70% of its revenue, saw a volume growth of 4.5% for the September quarter, lower than the 5% it reported a year ago and marginally higher than the 4.1% volume growth it reported in the June quarter. 

Dabur Chief Executive Officer Sunil Duggal said the market environment was challenging and there was need to step up focus on rural welfare as well as job creation in urban areas. 

“There will have to be sustained focus on rural welfare and on lifting the minimum support price of crops. While the government is working in both areas, the effort may have to be galvanised to instill faith in people in the hinterland to increase consumption of staples. Similarly, in urban areas, salary hikes and better job prospects is what will push people to increase consumption of staples," he added.

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