Monsoon forecast lifts India Inc hopes

Companies, analysts expect 8-10% top line growth, 12-15% growth in net profit

The forecast of an above-normal monsoon has buoyed hopes for a demand revival in the Indian economy and the mood in many corporate boardrooms is upbeat.

Industry and analysts foresee a broad-based demand recovery that will push top line growth of Indian companies to 8-10 per cent in 2016-17, which is twice the three-four per cent growth rate estimated for the previous year. Net profit growth is likely to clock 12-15 per cent as well.

Recent data from market research agency IMRB show  household consumption of fast-moving consumer goods (FMCG) in rural areas grew 5.4 per cent in 2015 while urban household FMCG consumption clocked 2.9 per cent growth.

Ajay Srinivasan, director, CRISIL Research, said, “Timely, adequate, and well-distributed rainfall will fuel a recovery in demand in consumer goods. Two-wheelers, tractors, FMCG, and consumer durables, which have a significant proportion of demand accruing from rural areas, will be the biggest beneficiaries.”

The  India Meteorological Department (IMD) has forecast monsoon rainfall will be 106 per cent of the long-period average (LPA) and a 94 per cent probability exists that it will be “normal to excess”.

Media reports suggest that car companies like Maruti Suzuki have gone back to the drawing board to redo sales projections for the year. “The industry has outlined a growth rate of 6-7 per cent for 2016-17. We are confident of double-digit growth in the year,” a company spokesperson says.

Adds Wilfried Aulbur, head of automotive Asia at Roland Berger, “For some companies like Maruti Suzuki, the rural market has become crucial. From three per cent of overall volumes the percentage of rural sales has grown to 30-35 per cent.”

Says Srinivasan of CRISIL Research, “We foresee demand for two-wheelers growing by 8-10 per cent in 2016-17 compared to three per cent growth in the previous year. Domestic tractor sales will also likely grow by 8-10 per cent after two consecutive years of declines.”

“While growth has been muted in the recent past, we are buoyant about the potential of the FMCG sector and we continue to invest in 65 projects across businesses with an outlay of Rs 25,000 crore,” says an ITC spokesperson.

Consumer durables player LG Electronics is upbeat after good summer sales. A company spokesperson says, “With a good monsoon projection we expect this sentiment to further boost sales.”

Rohit Mathur, president, fans, Usha International, says, “There is a lot of pent-up demand in the market. Looks like that demand has started trickling in now.”

Sameer Deshmukh, an analyst with Reliance Securities, says while there is pent-up demand for consumer durables, rural FMCG sales growth has now matured.

The share of rural sales has grown to around 45 per cent of total FMCG sales. In comparison, around 25 per cent of consumer durables sales come from rural areas, says the Boston Consulting Group.

Says Srinivasan, “Net profit growth is expected to accelerate and be in the range of 12-15 per cent owing to higher top line growth, improvement in margins, subdued working capital needs and lower interest costs.”

Dekhmukh adds double-digit revenue growth is possible on pricing growth with commodity prices firming up.