Leaner inventories held by companies to manage the GST transition, coupled with a general cutback in spending by customers amidst the uncertainty, saw consumer-oriented sectors in India Inc take a hard knock in the quarter ended June 2017, before the implementation of GST. But since then, segments such as auto, fast moving consumer goods (FMCG), entertainment, paints and building materials have seen a strong recovery.

Price cuts induced by lower GST rates helped volumes inch up sharply for many companies. Higher rural incomes from non-farm sources and pay commission pay outs gave a leg up to discretionary spends.

Back in form

The April–June 2017 period was a tough time for major consumer segments such as auto and FMCG. While the auto sector recovered quickly from the impact of demonetisation, it suffered the blows of both the transition to BS IV emission norms and the shift to the GST regime during the quarter. Overall, in the quarter ended June 2017, listed auto companies saw aggregate sales shrink by 2 per cent over the June 2016 quarter. But year-on-year sales growth for the industry improved steadily to 13 per cent, 16 per cent and 20 per cent in the September 2017, December 2017 and March 2018 quarters, respectively.

The industry ended fiscal 2017-18 with a healthy overall volume growth of 15 per cent, with demand across all segments such as cars, utility vehicles, bikes, scooters and trucks picking up. Benefits such as improved operating efficiency from the removal of check posts and a rejig in the location of warehouses by companies without having to worry about State taxes led to increased preference for higher tonnage (over 25 tonnes) trucks. From about 40-43 per cent in 2015-16 and 2016-17, the share of higher tonnage trucks in total heavy truck sales rose to 51 per cent in 2017-18.

The FMCG segment, too, put up a lacklustre show in the June quarter. Apart from a thin pipeline with wholesalers/distributors, what also affected volumes for this segment was the non-procurement by CSD canteens beginning in the first week of June 2017, in the run-up to GST implementation.

Sales volumes for Dabur, Emami, Jyothy Labs and Marico dropped in the quarter. However, a reduction in the GST rate for hair oil, toothpastes, soaps and a cut in the GST rate to 18 per cent (from 28 per cent) for products such as detergents, face/body wash, cosmetics, hair-care products and deodorants in mid-November 2017, reduced prices and helped boost demand.

Overall, in comparison with the low single-digit growth in the June 2017 quarter, sales for listed FMCG companies picked-up pace growing by 8-12 per cent in the other quarters of 2017-18.

Consumer durables makers such as Whirpool and IFB saw double-digit sales growth in the last 2-3 quarters, post the GST transition. Sales of electrical consumer durables such as fans, lamps and light fittings, for instance, were impacted due to the higher GST rate of 28 per cent on electrical products initially (18 per cent before GST). But the rollback to 18 per cent in mid-November helped demand strengthen for companies such as Bajaj Electricals in the second half of the fiscal year.

Profits under pressure

Profit growth kept in sync with revenue growth for most of these companies until the December 2017 quarter. But a rise in crude oil, prices of metals such as steel, aluminium, lead, copper, and other agri-inputs has seen profit growth take a step back, especially in the March 2018 quarter, for segments such as auto and FMCG.

Thankfully, with demand making a comeback, companies have been able to effect price increases during the last few months to pass on higher input prices to an extent.

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