Consumer goods sector adversely impacted by demonetisation: Report

The overall performance of the consumer goods sector will be adversely impacted by demonetisation as consumers curtailed spending following lesser currency notes in circulation, JM Financial said in its report.

“The quarter began on a promising note for most businesses, aided by good festive demand, but as is now well-known, the move to demonetise high denomination currency notes in the country from November 8 would make third quarter (October-December) 2016-17, a likely washout quarter for most businesses,” the financial services company said in the report.

“Companies we spoke to sounded more sanguine at December-end than they did in mid-November immediately after the demonetisation announcement, though,” it said.

So the key to watch from the earnings-season, the report said, would be “whether the quarter in fact turns out as bad as earlier envisaged (sales expected to be down 20-25 per cent for November and 10-12 per cent for December),” it said.

The report further stated: “We expect our consumer coverage group to report a largely flattish sales (-0.9 per cent), EBITDA [earnings before interest, tax, depreciation and amortisation] (-1.1 per cent) and adjusted net profit (-0.9 per cent) in aggregate versus 5-6 per cent and 9-12 per cent growth in sales and EBITDA in the preceding two quarters.”

It said that while rural growth was expected to revive during the quarter backed by a good monsoon season, consumers actually landed up curtailing spends following a reduction in currency notes in circulation after the demonetisation announcement, with consequent adverse impact on businesses’ revenues.