Parle Products says good days ahead as rural demand is reviving and commodity prices cooling

Mayank Shah, senior category head of Parle Products, is very optimistic about rural demand going up. Roughly about 45-50 percent of Parle’s business comes from the rural category.

“With a forecast of normal monsoon and with the increased realisation of most crops, we feel that farmers would have better purchasing power and we would have strong demand coming in from rural markets as we go forward in the FY22-FY23,” Shah told CNBC-TV18 in an exclusive chat. "We have seen rural demand getting revived in last one quarter."

What will also help the biscuit manufacturer is the cooling commodity prices. Costs of wheat, palm oil, and sugar — the key ingredients for biscuits — have all fallen in the past few days.

"Softening of prices of key inputs has bought much-needed respite to most of the fast-moving consumer goods (FMCG) players where palm and crude are widely used," Shah said. According to him, the benefit of lower palm oil costs will be seen in the next three-six months.

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The company is not passing on the entire increase in input costs to the consumers. “Most companies have not factored in the complete increase in prices. Therefore, the price hikes which were due would probably not be taken given that the prices of key commodities are coming down,” he explained.

Another FMCG player, HUL, had recently said inflation had severely impacted the sale of soaps but the firm will have to hike prices and shrink packets.

According to K Ramakrishnan, MD-South Asia at Kantar Worldpanel, the drop in volumes of FMCG companies was sharper in urban than rural markets. "We definitely see a very marginal drop in the overall FMCG volumes and the drop is by and large coming from urban. Rural is almost holding the fort but it also doesn’t help because there is a population growth inherently of 2 percent, which means rural is also dropping," he told CNBC-TV18.

He expects a better second half of FY23 for the FMCG sector.

Abneesh Roy, Executive Director, Institutional Equities at Edelweiss Securities, told CNBC-TV18 that FMCG stocks have started outperforming.

"We are overweight on the sector and we like names like Hindustan Unilever Ltd (HUL), Britannia, ITC, Asian Paints – almost all companies will benefit in the second half."

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