Monsoon brings cheer to food cos

CHENNAI: The monsoon has drenched the entire country — cheering the markets, boosting the economy and bringing relief to the FMCG sector. After last year's no-show, food product companies like Britannia, Parle, ITC Foods, Nestle and Dabur are sure to benefit from rains.
The India Meteorological Department (IMD) is positive about the probability of a normal monsoon because only thrice in the past century have there been two consecutive drought years.The good news is that if a drought year is followed by a normal monsoon, agricultural GDP growth is usually strong.
"We believe a normal monsoon will cool inflation and boost buying power, increase rural income and demand, and moderate input costs, which will ease margin pressure," says an analyst from Motilal Oswal, a financial services firm. "We expect moderation in prices of milk, sugar, wheat and rice - which will benefit companies like Britannia, Nestle, Dabur and Glaxo SmithKline Consumer. Britannia seems to be among the major gainers because prices of its key inputs like sugar and wheat flour rose sharply in the previous year. Nestle will gain due to lower/stable milk prices."
Britannia's COO Neeraj Chandra, however, is being more cautious: "We will know the impact of the monsoon on our company only once the season ends. More than our input costs, what will work better is that a good monsoon is good for the economy." Chandra says that last year's sales were hit by both the economic slowdown as well as the poor monsoon.
A poor monsoon translates to shrunken wallets in rural India. This, in turn, leads to poor sales in sectors like FMCG, consumer durables and automobiles as rural India forms the bulk of the consumer population in India.