Household appliance manufacturers, readymade garments and quick service restaurants will witness the sharpest decline in revenue in FY21, says a recent report by CRISIL Research. The report says that while manufacturers of essential products will undergo a 2-4 per cent dip in revenue, the dip in revenue for discretionary product manufacturers would be as high as 16-30 per cent. With people's salaries getting impacted due to the prolonged lockdown, there will be a tendency of consumers to postpone purchase of discretionary products such as appliances or even jewellery.
E-tail, according to the report will be an exception as e-grocers such as BigBasket and Grofers, online marketplaces such as Amazon and Flipkart have seen a surge in demand and delivering essential items at the doorstep of consumers.
Stretched working capital cycles will also squeeze liquidity and thereby impact profitability. The CRISIL report says that food companies will be moderately impacted on working capital intensity as automated production capacities and steady demand will ensure inventory days remain low. However, stressed penetration in rural areas and supply chain disruptions would delay payments from distributors. Household appliances and readymade garments will be worse off because of higher inventory and receivable days with unsold stocks piling up as well as poor sales. Also, upfront payments to raw material suppliers will put a squeeze on payable days.
The report expects consumer behaviour to witness a change in the near term as availability, convenience, affordability, hygiene and safety become new consumer priorities. The shift in brand loyalty due to unavailability will boost sales of local/SME manufacturers with a flexible logistics network. Restaurants and theatres will continue to be hit by the change in consumer priorities amid lingering fear of the pandemic.
While the current situation would lead to falling valuations and possible delay in exits by private equity companies, it could also throw up bargain finds for them among consumer businesses with good long-term prospects, says the CRISIL Report. It expects the health and wellness segment to emerge as the key investible theme for PE investors. Cloud kitchens will also attract PE interest as they are expected to revive faster than traditional dine-in restaurants and have lower rental expenses. Branded QSRs with a strong value chain will also regain consumer trust faster on the health and safety marketing plank, says the report. The lockdown is also expected to strengthen consumer interest in online consultation, e-learning and online recreation.