Realty, FMCG, auto feel the pinch

Pharma, ecom, jewellery — demonetisation is causing ripples everywhere; consumer durables could turn out to be among the few to escape the heat

The government’ move to pull back ₹500 and ₹1,000 notes from the economic system is likely to have significant repercussions. Sectors with links to the unorganised economy and those that thrive on cash transactions are likely to feel the heat most. The maximum impact will be felt in the short-term, though there would be some implications in the medium-to long term as well.

AUTOMOBILE: HEAT ON TWO-WHEELERS

Lack of footfall, low enquiries and lower sales conversions have hit cars and two-wheeler dealerships across the country. As a salesman at a Maruti Suzuki Nexa dealership in South Delhi aptly puts it: “People have stopped walking into the showroom, forget buying vehicles”. According to analysts, auto sales are likely to decline 15% to 20% during the October-December quarter. “The two-wheeler segment is more exposed since 40% to 45% of the sales happen in cash,” said Himanshu Sharma, auto analyst at Centrum Broking. Passenger vehicles, on the other hand, may escape a bit of the pain since less than 12% of the total sale happen through cash. Most (around 70%) is though loans. For two-wheelers, which are highly dependent on rural sales (40% of volumes), sales can easily go down 30% or even more. “In the first two days (after demonetisation), the footfall at our dealerships was just 15% of what it was in October; but now it has reached 50%,” said Pawan Munjal, chairman, MD and CEO, Hero MotoCorp. Shares of TVS Motors have fallen 9% on the BSE in the last 10 days, Maruti is down 9%, Hero 12%, M&M 10% and Bajaj Auto 10%.

CONSUMER DURABLES: CASH IS NOT KING

Since very few people pay upfront for buying consumer durables, companies in the sector can brathe a little easy. Executives at several big companies said it has been mostly business as usual for them. “Most of our business happens through cards or net banking. TVs, refrigerators and ACs are bought through EMIs,” an executive with a top consumer durables company said. But those selling smartphones and feature phones, especially in the low-end and the mid-segment may not be that lucky. “Most companies selling budget and mid-range phones will get affected since EMIs are not available for purchase in these segments,” said Tarun Pathak, senior analyst at Counterpoint Research.

FMCG: KIRANAS BEAR THE BRUNT

While mom-and-pop stores, popous ularly known as kiranas, have seen significant dip in sales, big ones, which have swiping machines and mobile wallets installed are seeing an increase in footfall. “Several costumers went away without making purchases when the swiping machine conked off,” said Hira Lal, store assistant at Connaught Placebased convenience store Twenty Four Seven. “Otherwise, there is no impact on sales. In fact, there are more customers coming in to do debit or credit card-based shopping. Cash based transactions are rare.” But India has over 10 million kiranas, and 90% of them don’t have card-swiping facility, according to industry estimates. No wonder that FMCG firms have seen a 5% to 10% fall in sales in the last 10 days. “Impact is there, undoubtedly,” said Lalit Malik, chief financial officer, Dabur India. “Fortunately, most of the shopping for such discretionary products such as toothpaste, daily use cosmetics are done during the month’s beginning.” “Consumers are buying less from retailers due to cash crunch. Distributors are supplying less due to increasing credit pile from retailers,” said Pinaki Ranjan Mishra, national leader, retail and FMCG, Ernst & Young.

REAL ESTATE: RESALE WOES

The resale market has seen a 15% to 20% drop in transactions since November 8, since cash is an important component in such deals. According to analysts, now buyers will mostly go for those companies that have a track record of compliance with vari- rules and regulations. “While real estate transactions are likely to go down in the short term... the organised sector, especially large real estate companies, will benefit as they have strong compliance checks and follow tax rules and regulations. We expect demand to go up as customers will look at organised companies for investments,” said Rajiv Talwar, managing director of DLF.

PHARMA: NO LOOSE CHANGE

The sector is facing a different problem. While chemists are allowed to accept old notes of R500 and ₹1,000, they are facing a shortage of lower denomination currency, especially R₹100. “Even if the purchase is for as low as ₹50, customer offer ₹2,000. It is not possible for us to arrange lose money for every transaction. Hence, we end up refusing the transaction or give medicines on credit,” said JS Shinde, president, All-India Organisation of Chemists and Druggists. “Only about 20% of total chemists in India accept payments through card or mobile wallets.” Besides, there’s also a shortage of stocks since the government has not extended the relaxation of accepting old notes to distributors. But there’s a segment that is cashing in on the cash crunch — online medicine sellers. “Sales have jumped 20% to 25% in the last few days,” said Prashant Tandon, CEO of e-pharmacy 1 Mg.

E-COMMERCE: NOT CASHING IN ON DELIVERY

Flipkart’s sales are down by 20% mainly due to e-tailers’ over dependence on cash-on-delivery (COD), which allows online buyers to pay by cash when the product is delivered at one’s doorstep. The sale of high value items have gone down, signalling a decline in overall revenue for the company, at least in the short-term. For Snapdeal, too, the situation is similar. (Flipkart and Snapdeal have over 60% share of the Indian e-commerce market). “The average value of COD orders declined by close to 15% in the last one week,” a Snapdeal spokesperson said. Things are even worse for smaller companies, which are more dependent on COD. “In the near term there is some disruption, and it’s not certain if this is a two month or six-month event,” said Ashish Gupta, managing director, Credit Suisse India.

TOURISM: THERE’S ROOM FOR LESS

It’s been bad news for foreign tourists visiting India, as well as Indian tourism, especially since October to February is considered to be the peak time for inbound tourism. A hike in prices of food and beverages, has hit the hospitality industry. Similarly, the banquet segment—another money-making area for hotels, too, has also taken a hit, with bookings down 30%. However, there has been some respite with the government allowing old currency notes to be used at all monuments under the Archeological Survey of India.

GEMS AND JEWELLERY: SHINE OFF

The sector is expected to witness a decline in sales in the next two to three quarters, especially since 80% of jewellery purchases are done through cash. The unorganised segment will be the worst affected due to the large proportion of cash deals involved. In the long-term, however, organised jewellery retailers are likely to benefit from the structural change in the market since things are likely to be more systematic.