Dabur India Ltd., the household goods maker controlled by the billionaire Burman family, is expanding in the rural market of the world’s second-most populated nation to revive sales that grew at the slowest pace in two years.
The company increased its rural network to cover 36,000 villages as of October from 14,000 in March 2012, Dabur said in an e-mail. That helped the maker of Hajmola digestive candy boost sales in villages to 50 percent of revenue in the year ended March 31 from 40 percent in 2009. Revenue from Indian operations in the quarter ended Sept. 30 grew 10.6 percent, the slowest pace since the same quarter in 2011.
The best monsoon in six years is luring companies including Dabur, Mahindra & Mahindra Ltd., India’s biggest tractor maker, and HDFC Bank Ltd. to a population that exceeds the U.S. and Europe combined. Higher farm output and the Congress-led government’s $77 billion spent in rural areas is boosting demand for Dabur’s Sani Fresh toilet cleaners and Odomos mosquito repellent creams, according to Rohit Prakash Gupta, Dabur’s head of homecare products.
“The incremental domestic consumption story, which is by far the most important driver of growth in India, is going to be stronger among the rural population than urban,” Jan Dehn, the head of research at London-based Ashmore Group Plc, which oversees $78.5 billion in emerging market assets, said in a phone interview yesterday. “It makes sense to watch this space very carefully.”
General elections may also help consumer goods makers boost sales next year, said Naveen Vyas, Kolkata-based analyst at Microsec Securities Ltd. Profit at Ghaziabad, India-based Dabur’s may rise 22 percent to 9.29 billion rupees ($150 million) in the year ending March 31, according to a median estimate of 40 analysts surveyed by Bloomberg.
In regional elections that ended yesterday, the opposition Bharatiya Janata Party is poised to become the largest party in four out of the five states that went to polls, according to the C-voter exit poll shown on Times Now television channel. National elections must be held by May 2014.
The gains for consumer good companies may be short-lived, said Swati Gupta, an analyst at AC Choksi Share Brokers Pvt. in Mumbai. A good monsoon and increased handouts from the government during the election season have led to a “short term effect” of higher rural incomes, Gupta said.
Higher rural income will mean Dabur faces intensifying competition from companies including Hindustan Unilever Ltd., India’s biggest consumer goods company, which supplies its goods through 2 million retail outlets across India and has a network of 48,000 women in villages to promote and sell its portfolio of soaps, detergents and skincreams.
Dabur’s shares, which have risen 26 percent this year, gained 0.4 percent to 163.60 rupees at 10:44 a.m. in Mumbai. Hindustan Unilever has advanced 9 percent this year. The shares rose 0.3 percent to 573.5 rupees.
With more than half the cultivated area in India being rain-fed and the four-month monsoon season accounting for about 70 percent of total rainfall, a good monsoon boosts farm output. India received the highest rainfall since 2007 in the season that extends from June 1 to Sept. 30, according to the nation’s meteorological department.
Production of food grains in the 2013-14 season will probably reach a record, Agricultural Minister Sharad Pawar said in September. Rising output of foodgrain helped Mahindra’s local tractor sales surge a record 24 percent to 128,626 units in the six months ended September.
Companies looking to expand their business in India’s 600,000 villages are spending more on television advertisements and setting up stalls and billboards in village fairs, that are visited by millions of people from rural areas and small towns, according to Sanjay Kaul, owner of rural marketing firm Impact Communications.
Kaul has experienced a 50 percent jump in the number of companies seeking his help to sell products in the month-long Sonepur animal fair in Bihar state, which began on Nov. 17 and is likely to attract 5 million people this year.
“The market area is full with stalls,” said Kaul, who counts the Indian units of GlaxoSmithKline Plc., Reckitt Benckiser Group Plc. and Britannia Industries Ltd. as his clients. “This is better than we expected.”