Cash crunch to hit Q3 earnings of packaged goods firms

A tightening of cash-in-hand of consumers post-demonetisation will hit consumer goods and packaged food companies most, bringing down sales at kirana and mom-and-pop stores, as people tighten their purses.

In fact, there has been a slowdown in sales at neighbourhood stores as also vegetable and agricultural produce markets across the country since the 8 November crackdown on cash hoardings and analysts see the possibility of a hit in third quarter earnings of FMCG companies.

''There may be some short term pain, especially when Q2 of the fiscal saw good growth. Even Q3 results may take a dip, but it is a bit early to say,'' said Anil Talreja, Partner, Deloitte Haskins & Sells.

''Clearly… some green shoots of recovery is likely to be delayed,'' another analyst firm Edelweiss stated in a its recent report.

A BusinessLine report quoting the Edelweiss report also points to the demonetisation affecting cash-and-carry wholesale trade in the FMCG and packaged food sector.

Cash-backed wholesale trade has taken a beating as realisations from retailers go down following the demonetisation move, adds Harsh V Agarwal, director of Emami Ltd.

''Wholesalers dealing with cash are the worst affected. Until liquidity improves, nothing much may happen,'' the report quotes Agarwal as saying.

Biscuit and soft-drinks manufacturer Parle Products expects a 10-12 per cent fall in November sales, according to B Krishna Rao, category head.

Distributors are delaying orders amidst a slowdown in consumption and Parle says there has been a near 30 per cent drop in sales since the 8 November demonetisation move.

The most affected in the FMCG sector are the so-called premium products that sell more by brand name. Unlike staple products sales of these premium products are dependent on consumers' discretionary spending and a cash cruch would impact these products more.

While organised retail trade has been less affected because of lower dependence on cash, they too have reported a slackness in demand for snacks and other packaged food.

Supermarket, however, saw a sudden spurt in sales as people turned to these for everyday grocery items and even vegetables.