RURAL ECONOMY – FirstFlash

Rising costs of daily items -- including that of smartphone data -- is impacting the rural customer's ability to purchase packaged goods such as hair oil and skin creams, analysts from Centrum Broking said after interacting with the management of Emami Ltd, the Indian consumer goods company with the highest exposure to the rural market. "In our interaction, management pointed indicate that revenue momentum disrupted in recent past due to, (1) extreme seasonality, (2) twin shock in the Economy - GST, Demonetisation disrupting wholesale channel, (3) sticky food inflation, and (4) increased consumer spends on smart phones and data pack," they said, adding that consumer spends have been impacted in categories such as male grooming, hair oil, and healthcare sale. The analysts indicated that growth projections may be cut. The company "remains confident to deliver +15% growth in international business led by recovery in SAARC region, however expect gradual recovery in rural markets led by better MSP and govt. impetus on rural programs. Management said to be committed to cut pledge to low single digit. Though rural recovery remained elusive we expect recovery post Q1," they said. However, the company's urban growth remained resilient, supported by modern trade and e-commerce channels, which account for approximately 25% of its sales. Emami's direct-to-consumer brands, such as The Man Company and Brillare, continued to outperform in this challenging environment. To address the growth challenges in its Kesh King hair oil portfolio, Emami has engaged Boston Consulting Group as a consultant. The company aims to achieve high single-digit volume-led growth in its core portfolio, despite the weak rural demand and uneven seasonality. Emami plans to focus on expanding its distribution network through Project Khoj, emphasize product innovation and new product development, implement judicious price hikes, and invest in marketing to strengthen brand equity. Centrum Broking expects Emami to maintain an operating margin of around 28-30%, supported by lower raw material costs, strategic price increases, an improved product mix, and expansion into high-margin adjacent product categories. The brokerage maintains its Buy rating on Emami with a target price of Rs 610 per share.

Tag: RURAL ECONOMY

Weak rural market continues to drag Emami Ltd sales