Core Product Sales, Critical to Getting India Inc Back On Growth Trajectory, Remain Subdued

Core product sales — critical to get India Inc. to boomerang to pre-COVID levels — remain muted and sluggish.Making it worse,global cues and central bank moves aren’t helping matters, with key bankers mulling over new stimulus packages and countries like China exporting deflation to the rest of the world.

The maxim ‘Out of the frying pan, Into the fire’ comes to mind when we think of Indian businesses. Sales futures still battle slow demand (albeit on a lower footing) and the freebies faceoff continues for goods such as luxury vehicles, electronics items, food products and personal care items.

Ironically, just when it seemed to be emerging after swimming the raging domestic waters, India Inc. is now subject to the global churn that the rest of the world is facing up to. Miscued economic policies in the West and Japan, as also indigent interest pressures worldwide, are contributing to the new state of affairs in the world marketplace.

Banks are facing a crunch too, with larger institutions continuing to reel under the pressure of non-performing assets (NPAs) and other performance scales, even as smaller entities like Bandhan Bank, Punjab National Bank and IndusInd notch up heady top-line and bottom-line growth numbers. Take HDFC Bank, which showed revenue and profit growth (24 per cent and 34 per cent, respectively), but admitted to increased pressure on NPAs (Non-Performing Assets) and provisioning for rising risk weight.

Slowdown Hits All

Look at ITC, the cigarettes to FMCG and hotels conglomerate, which showed a 10.75 per cent increase in profits after tax and a rise of 8.52 per cent in revenues in Q3 of FY ’2023. The wrench in the works was that while ITC’s cigarettes and hotels businesses reported a commendable quarter, the agro-products, paperboards, paper and packaging businesses slowed down.

A Rs 6.25-per-share dividend announcement failed to prop up ITC share prices, especially after largest shareholder BAT said it was divesting its stake “to pursue all opportunities to enhance balance sheet flexibility”.

P&G’s Q3 performance was a mixed bag as it showed flat sales at Rs 1,131 crore, even as net profit increased 10 per cent on higher product prices. The company also announced an interim dividend of Rs 160 per share for the financial year, including a special payout to commemorate 60 years of operations. Revealing the reason for the slow sales offtake without indicating thus, P&G Hygiene and Health Care MD LV Vaidyanathan said: “The quarter has remained challenging amidst a difficult operating environment. We remain committed to our integrated growth strategy of a focused product portfolio of daily use categories where performance drives brand choice.”

The Struggles Continue

Godrej Consumer Products has also warned revenues will decline in low-single digits year-on-year as the demand environment remains subdued. In the Godrej Consumer Products and P&G statements lie the primary cause for India Inc.’s struggles in the domestic market. Intense competition and a demand-supply imbroglio is leading to pricing and selling innovation. As mentioned in a previous column, with blood and gore engorging balance sheets, companies are resorting to all sorts of freebies and offers to kickstart sales and save the day, worried that the blip will dangle over their heads for long.

It is this desperate rush to grab market space that is forcing India’s companies to offer markdowns running into crores of rupees. From automobiles to washing machines, room heaters to dishwashers; there are hefty rebates. They are also available in smaller offerings such as toothpaste, biscuits, honey, soaps, hair oils, shampoos and juices, with companies either offering you more product weight at the old price, or a plus-one offer to coax you to purchase the product.

Despite the freebies, prices of daily essentials and commodities are softening globally, particularly in India. That, incidentally, throws up a concave mirror to China. When the universally-accepted manufacturing hub of the world exports deflation to the rest of the world as its domestic prices hit the bottom, global sales outlook(s) get deeply unsettled.

It also puts an enormous question mark on individual and collective economic revival, more so when central banks in Japan, Brazil, Vietnam, etc. are already working on stimulus packages, which are sure to impact interest rates adversely.

When Stimulus Can Kill

Such stimulus packages, the purchase of enormous amounts of gold reserves and further tweaking of repo rates (and consequently bank interest rates) will negatively impact already-embittered banks, including those in India. And while on the global economy, how can one leave out the United States, which is reeling under enormous sales and rate pressures, inevitably sending them trickling down to other nations like India?

The saving grace is that a ‘very-confident-about-elections’ Indian Government and its already announced fiscal interventions may just offer its businesses and economy a soft landing.

For India’s battle-hardened and still-fighting for pocket- and mind-space companies targeting the everyday consumer, core product lines need to bounce back to old numbers and the good times. Without freebies, without discounts, without one-plus-ones, and without dangling any carrots. For that, Indians - both from urban and rural areas - need more money in the bank and some in the pocket.

To be able to do that, the Indian job market and overall economy needs to get a shot of resurgent indulgence. And for that, we need business acumen, financial wizardry and economic magic. That makes this is a particularly tender space, full of market-bucking trends and calisthenics that need to be watched very closely.

(The writer is a veteran journalist and communications specialist. Views expressed are personal.)