India Inc.’s revenue growth in April-June 2012 (Q1FY 13) is likely to be the weakest in the last six quarters as demand moderates in the current quarter. Revenue growth in the first quarter of current financial year 2012-13 is forecast to drop to around 14 per cent from 17.5 per cent in Q1 FY12, given the slowdown in economic activity and gross fixed investments, said Crisil Research.
Marketers have been cautious from the beginning of this year in terms of budget allocations and have reduced their planning cycle because of the uncertainty in the market. And now with slowing of revenues, they are re-looking their media allocations and striving for more ‘bang for the buck’ and reducing budgets in relatively expensive mediums.
“I think the environment in general has been a wait and watch. There has been an air of caution and the decline is not entirely unexpected as well. The marketers have been vary and are optimising spends, which have been on a tight rope already. At the same time they are investing and spending on categories that are essential,” said Mahesh Chauhan, Co-Founder, Salt Brand Solutions.
Auto sector sales growth is expected to dip to five to seven per cent for Q1 as compared to 12.5 per cent growth last financial year, said Crisil Research. This sector had tried to beat the slowdown in the second half of last year by launching more models and advertising more. With the recent issue of fuel pricing and increase in petrol prices the diesel percentage of vehicles that are sold in the passenger car segments had steadily increased to about more than 40 per cent. In fact according to Crisil, in the first quarter (April-June FY13), the numbers had even crossed 50 per cent. But suddenly because of the uncertainty on what will happen to diesel prices going forward, we are seeing that the waiting period for diesel cars coming down, in the last one and one and half months. And unless there is clarity on how the government is going to go about on the fuel pricing issue, we may see the numbers slowing.
Marketers in turn are recalibrating their response to various models within their portfolio. “As of now there are no plans to truncate our marketing and advertising budgets, what we are doing is continuously assessing the market and recalibrating our response to various models. Maybe the plans that we made at the beginning of the year need some modification; where to spend money optimally, what kind of efficiencies can be built up…we are thinking on those lines. The overall intervention in terms of spends; we haven’t talked of a cut back as of now. What we are discussing is how to utilise the money and what intervention can work in such a situation. The situation is very fluid while we have long-term and mid-term plans; we are critically analysing short-term plans because there is a lot of dynamism in the market. We are also tightening up our planning cycles,” said Nalin Kapoor, Group Head Marketing, Hyundai Motor India.
During last slowdown, sectors such as real estate and financial services had cut advertising budgets. And since these sectors have remained muted in the past few years, a further de-growth in revenues is not expected to hit ad spends any further.
Rajeeb Dash, Marketing Head, Tata Housing said, “These are challenging times for a lot of sector and the ripple effect is evident across the board. The dip in sales of real estate / consumer products / services is also a reflection of the conservative state of mind of consumers / businesses. But the question ahead of marketers is not about to advertise or not to advertise but is about which medium will give them the maximum bang for the buck. As a result of that, you would see marketers investing more in digital media and reduce budgets in the relatively expensive and speculative print medium.”
“One would see a lot of new product launches being delayed for the festive season when the market could be expected to react more positively. In this lean period, a lot of brands could be expected to take up more focused and cost effective brand building initiatives,” he further added.
Telecom, the star advertising sector of the last decade has seen companies squeezed of cash by multiple factors such as 3G licence costs and drying up of credit lines from lenders on back of scams that has led to a cut in ad spends. But its spending might be back soon, owing to fresh auctions for licences. FMCG is one sector which is expected to drive growth and remain a big volume spender. Even during the last slowdown, this sector didn’t cut advertising budgets but looked at more efficiency from media buys.
Further, government’s decision to allow states to go ahead with FDI in multi-brand retail might improve market sentiments. This could also bring in more investments in other sectors leading to job creation and improving economic growth.
“Slowdown in sales growth is part of business cycle. It is not the outcome of any economic slowdown as of now. It would, therefore, not depress the marketing sentiment. Rather brands will launch better offers to lure the customers and that would need communication,” said Atul Shrivastava, Chief Operating Officer, Laqshya Media.
(With inputs from Priyanka Mehra and Priyanka Nair)