Demonetisation damper on Emami's wholesale channel

The Kolkata-based FMCG firm is likely to post a stressed balance sheet for the first quarter of FY18

Kolkata-based Emami, producer of fast-moving consumer goods in the personal care and health care segments, is likely to post a stressed balance sheet for the first quarter (April-June) of the current financial year.

The company is also undergoing a distribution overhaul. Company Director Mohan Goenka says its wholesale channels, currently 52 per cent of its sales network, have been under stress as an after-effect of demonetisation. And this could be hit again in the near term, once the national goods and services tax (GST) takes effect.

“The southern wholesale channel particularly is on a de-stocking mode. Overall, this line of sales was hit in the demonetisation period and with cash transactions capped, uptake from this channel has fallen,” he told Business Standard.

Business transactions in this sales channel are primarily in cash and with the Centre tightening its noose on cash transactions, capping it at Rs 200,000 from the earlier ceiling of Rs 300,000 a day, wholesale traders are reluctant to pick up further products.

Further, its wholesale channel is faced with unsold inventory, particularly in rural markets, from the demonetisation era. Although these are getting cleared, wholesale traders still have a lot of stock. “The wholesale channel prefers to clear their stock by the end of June, when new seasonal and other products are picked up. Thus, the opening stock of July will be pretty low,” he said.

Although Emami was able to maintain its profit in the March quarter, up a marginal 1.5 per cent at Rs 83.3 crore, its revenue felt the pressure with a 4.4 per cent fall to Rs 577.7 crore.

Goenka, as mentioned, fears further disruption for a limited time frame once GST rolls out. “However, it will be only for two-three months, after which things will normalise and pick up. In the long term, GST will be good,” he said. Goenka said their Rs 850-crore Navaratna brand, with 61 per cent market share and 40-45 per cent of summer sales, had been the worst hit in uptake. Although talc products under this brand have showed growth, oils in the recent past have not.

“There is anticipated recovery in rural demand, led by a better monsoon, pay commission and OROP (higher soldier pensions) payouts and improving liquidity in wholesale channels. Further, we expect Emami to benefit from further penetration in most segments that it is in,” said Abneesh Roy, senior VP, Edelweiss Securities.

Realising its dependence on the wholesale channel, Emami Ltd has embarked upon a distribution overhaul strategy.