India Inc upbeat on Bharat; 700 mn rural Indians ready & willing to spend

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India Inc upbeat on Bharat; 700 mn rural Indians ready & willing to spend​

Bharat offers a painkiller to suffering India as bumper monsoon loosens purse strings of farmers

NEW DELHI/MUMBAI/KOLKATA: The economy and company bottom lines aren't a complete washout - excellent monsoons have set the stage for bumper harvests in October and that, in turn, will lead to higher rural incomes and spending. India Inc majors are saying it is rural India - home to roughly 700 million people - to the rescue as urban India feels too gloomy to spend more.

Consumer goods makers LG and Videocon, mobile services providers Vodafone, ******, Idea and Uninor and automakers such as Suzuki, Honda and Mahindra & Mahindra are among the host of companies firming up rural marketing strategies.

Some companies have already seen rural sales grow at a healthy clip.

"The rural market is still growing at 10-14% whereas the urban markets are either marginally de-growing or are flat. Our estimates of markets such as Punjab and Uttar Pradesh show consumers are ready to buy products," said Videocon's Chief Operating Officer CM Singh.

Bumper Monsoon has Sown Hope​

Bharat offers a painkiller to suffering India as bumper monsoon loosens purse strings of farmers LG Electronics India, the country's largest durables maker, is aggressively targeting rural areas and plans to launch smartphones and its flagship flat-panel television sets in these markets for the festive season, said Chief Marketing Officer Sanjay Chitkara. "We expect consumers in rural India will upgrade their purchases," he said. Rural markets are growing 7-8% more than urban markets for LG India and account for 15-18% of overall sales.

The optimism is not misplaced. In the country's main cropping regions, the monsoon has been timely and 20-30% above average so far, prompting farmers to expand cultivated area by 9% to 930 lakh hectares, with the biggest gains in pulses, oilseeds and coarse cereals. "Looking at the current scenario, we expect a bumper production this year," Agriculture Secretary Ashish Bahuguna said. Macquarie expects economic growth to improve to 5.4% this fiscal from 5% last year "primarily on account of agriculture".

Apart from raising incomes, good monsoon rains also cut farming costs. "Farmers will save on input costs such as irrigation, diesel, electricity and labour, which will have a positive effect on the incomes of farmers," said Ramesh Chand, director, National Centre for Agricultural Economics and Policy Research.

Even before the bumper harvest, the rural customer is already a juicy option for automobiles and telecom companies.

Maruti Suzuki's rural sales have jumped 19% this fiscal at a time the industry has contracted for nine months. The share of rural markets in Maruti's sales has expanded to 28% from just 4% in 2008. "We have been focusing on these markets since the slowdown in 2008, and the initiative has helped us generate strong demand. The strong monsoon is expected to propel the demand further," said Mayank Pareek, COO (marketing & sales) at Maruti Suzuki India.

Two-wheeler sales are also rising in villages. "Going by the current trend of rising rural incomes with higher yields and minimum support prices, we are bullish on further growth from this critical market," said YS Guleria, vice-president for marketing & sales, Honda Motorcycle & Scooter India.

For telecom, rural markets are even better. "The average revenue from a rural customer today is at par with the average revenue in an urban area, because rural penetration is still low; so by local standards you are penetrating into a higher income segment," said Himanshu Kapania, chief executive, Idea Cellular. The company draws 60% of its customers from rural areas.

"This is why I have always said, there is still a lot of juice in voice for the next 3-4 years, as penetration in rural increases," Kapania added.

Rajeev Sethi, chief marketing officer at Uninor said, "In our experience, the basic services at 'sabse sasta' or most affordable tariffs promise becomes even more relevant in smaller towns and villages, and explains the traction Uninor gets as it enters small towns."

Vodafone and ****** have major plans for rural Indians. ****** Airtel has started an interactive, recorded voice service to provide agriculture-related information. A ****** spokesman said: "We believe that a lot of customers in these markets will experience Internet for the first time over a mobile device, and services like m-commerce could be a game-changer."

An official at one of the top three telecom companies said nearly 70% of the firm's current capital investment is going into rural areas. He asked not to be named.

Dabur India CEO Sunil Duggal said rural demand is poised to rise at a time urban demand is slowing down.

"There is no deterioration of consumption cycle in rural India unlike the urban markets, despite high inflation," he said. Dabur is expecting 30-40% higher growth in rural India over the urban markets.

Emami Director Harsh Agarwal could not agree more. He said that in certain categories, rural consumers are showing a tendency to upgrade purchases of high-priced products or larger packs, which will get a fillip due to good rains. "Categories such as skin care and fairness creams are getting a good demand in rural markets since consumers there have more discretionary spending power," said Agarwal. The rural business contributes around 35% to Emami's sales, and is expected to grow further.

The consumer durables industry is particularly excited about rural demand, since the industry growth rate is flat due to recurrent price hikes on rupee depreciation and poor consumer sentiment.

The gold trade also counts on rural markets for 60% of sales. "A good crop this year will boost the demand for gold in rural India this festive season. There is a shortage of yellow metal in the market and the premium on gold is escalating. If the supply of gold does not improve, it will be difficult to address rural demand," said Haresh Soni, chairman, All India Gems & Jewellery Trade Federation.

Less glamorous sectors such as farm equipment, pesticides and fertilisers will directly gain from higher demand from farms. Sales of complex fertilisers, which have more than one nutrient, are poised to rise and manufacturers hope to clear some 6 million tonnes of inventory over the next couple of months.

"We saw a good demand from farmers for complex fertilisers this time. Sales are picking up. We will soon place fresh orders with companies once the stocks are cleared," said G Munendar, member, Fertiliser Advisory Forum, and vice-president of Andhra Pradesh Fertiliser Dealers Association.

Banks also hope to gain from the farm boom. Macquarie expects agriculture, restructured electricity boards and home loans to be the "saviours" for the stressed banking sector.

"Note that these three sectors, i.e.- home loans, agriculture loans and power sector loans, put together would constitute around 30-35% of the loan book of banks and are likely to grow around 20% for FY14E," it said in a report.

Source:- India Inc upbeat on Bharat; 700 mn rural Indians ready & willing to spend - The Economic Times

 

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