Demand in India: Urban market recovery stutters, rural market turns saviour

Nov 15 2013, 12:57 IST
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During the first 6 months of the current fiscal, every third car Maruti Suzuki sold was in the rural markets. During the first 6 months of the current fiscal, every third car Maruti Suzuki sold was in the rural markets.
SummarySigns of an impending economic recovery seems predicated on monsoon-fed uptick in rural sales.

For Maruti Suzuki India, the country’s top car maker, a flat 3 per cent overall growth in volumes reported during the first six months of the current fiscal hides a silver lining — a 24 per cent surge in the rural markets.

During this period, every third car the company sold was in the rural markets. Maruti Suzuki is not alone in reporting this trend.

The nascent signs of an impending recovery, going by the sales trends of listed consumer goods and auto firms, seems predicated largely on a monsoon-fed uptick in the rural sales, even as urban demand continues to flounder. Rural demand is emerging as the key driver for a corporate sector turnaround for companies focused on the domestic market.

The other clear impetus that is visible is in export-led sectors such as IT and textiles, a pointer to the improved prospects of the US, Japanese and European economies.

Among consumer goods firms, Dabur India Ltd reported a 23 per cent rise in consolidated net profit during the quarter ended September 30, on the back of a sharp improvement in rural sales.

“Strong demand from the hinterland following the mega initiative to double our rural distribution footprint helped Dabur India sail through a challenging business environment and moderation in consumption expenditure,” a company spokesperson said. Dabur India CEO Sunil Duggal conceded that the company was clearly seeing demand from rural India outpacing the urban markets.

Other consumer goods firms too are reporting the trend, based on numbers from the previous two quarters. A continuing sluggishness in demand in the urban markets has prompted Marico, for instance, to try and push its premium brand Saffola in the rural markets. “Saffola has been restricted to the top 6-10 metro markets and does not have any rural distribution. Since there is headroom for growth in the rural markets, we are prototyping Saffola for this (rural) market with enhanced distribution as there is softening of urban demand,” said Saugata Gupta, CEO-FMCG, Marico, during an analyst conference recently.

Sales growth in the urban-centric categories, the company said, has gone down in the past 9-12 months. “There is potential in the long term for Saffola in the rural markets and we expect it to contribute about two per cent additional growth for the brand,” Marico’s Gupta noted. Currently, the rural markets contribute 35 per cent to Marico’s sales

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