The coronavirus lockdowns and the resultant disruptions in demand and supply will see the consumer sector degrowing by 2-4 percent this fiscal, says a report. However, the impact will be much larger, to the tune of 30-40 percent, if the lockdowns continue beyond the first quarter, Crisil said in its report on Wednesday.
It added that the crippling impact of the pandemic will trigger a rush by private equity players who will be keen to take over the most distressed companies, given the changing consumer priorities to health and wellness.
“The disruption in demand, production and supply chain caused by the extended nationwide lockdown to contain the COVID-19 pandemic will knock back revenue growth by 2-4 percent for the consumer essentials sector, and 16-30 percent across discretionary manufacturing and consumer services this fiscal,” the report said.
However, it warned that “this is only in the base-case scenario of the lockdown ending in the first quarter. In case of extended vulnerability due to fresh extension of the lockdown into the second quarter, the fall could be a steeper 30-40 percent.”
It further said discretionary segments like appliances, ready mades and quick service restaurants will be hit the hardest and see steepest revenue plunge under both scenarios and their stretched working capital cycles will put further squeeze on liquidity, impacting profitability.
What is more, these segments will also take the longest to recover post-lockdown, while discretionary spending will take at least a year to recoup.
The only segments that will recover fast are e-retail and essential items, the report said, adding “these will also bounce back within a month as consumers turn brand-agnostic and switch to available local brands, and as e-retail platforms meet the need for contactless shopping and doorstep delivery.”
According to Rahul Prithiani, Director at Crisil, “consumer behaviour will change in the near-term as availability, convenience, affordability, hygiene and safety become priorities. The shift in brand loyalty due to unavailability will boost sales of local/SME brands which have flexible logistics.”
“Sensing this, retailers and fast-moving consumer goods companies have started tying up with food delivery service providers to suit consumers’ quest for convenience. The lingering fear of COVID-19 will also provide a boost to e-retail and cloud kitchens,” he added.