NEW DELHI :
The ongoing pandemic will sway investor preference towards e-retail, cloud kitchens, essential consumer goods such as packaged foods, staples, and health and hygiene products as heightened consumer appetite for such goods and services will drive investments in these segments, analysts at CRISIL Research said in a note on Wednesday.
As companies grapple with the supply and production complications, an extended lockdown, and deal with evolved consumer behavior, CRISIL expects this to shave off revenue growth for consumer essentials by 2-4%; while discretionary manufacturing and consumer services could take a revenue hit of 16-30% this financial year.
Moreover, a slump in affordability and uncertainty on when businesses will resume to normalcy could see discretionary categories such as apparel, electrical appliances, fast food chains, etc., take longer to recover as Indian households go easy on such expenses for at least a year.
CRISIL based its estimates on future consumer demand in India, keeping the base-case scenario of the lockdown ending in the first quarter of this year. “In case of extended vulnerability due to fresh extension of lockdown into the second quarter, the fall could be a steeper 30-40%,” researchers said.
All this will beat down valuations, delaying exits for private equity (PE) players from existing companies, the note said. “However, the slump will throw up new bargains among consumer businesses with good long-term prospects, creating fresh investment opportunities for PE players,” according to the note.
Analysts at CRISIL Research expect the health and wellness segment to emerge as the key investible theme for PE investors. “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 and SME manufacturers with a flexible logistics network,” Rahul Prithiani, director, CRISIL Research said.
The lingering fear of Covid-19 will also provide a boost to e-retail and cloud kitchens, said Prithiani.
Covid-19 has altered consumer behaviour the world over. In India, shoppers have largely stocked up on household essentials and adopted online shopping as They remain under strict lockdowns.
On the business side, analysts suggest that for essentials, such as packaged food, packaged household products, staples etc., the revenue decline will be lower “as demand is only marginally impacted”. Moreover, e-retail and essential items will fare much better, with lower decline in revenue. “These will also bounce back faster – 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,” the research note said.
However, household appliances, readymade garments and QSR will witness the sharpest decline in revenues, as consumers postpone discretionary purchases, and rework their household expenses to prioritize convenience, affordability, hygiene and safety. “Stretched working capital cycles will put a squeeze on liquidity and hurt profitability,” the note said.
Interestingly, cloud kitchens will also attract private equity interest as they revive faster than traditional dine-in restaurants and have lower expenses.
“Cloud kitchens is one segment that will attract PE interest as they will revive faster than traditional dine- in restaurants and have lower rental expenses. Branded QSRs with a strong value chain will regain consumer trust faster on the health and safety marketing plank. And e-commerce will witness accelerated interest as demand for contactless deliveries at the doorstep rises,”analysts at CRISIL Research said.