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Budget 2018
Last Updated : Feb 01, 2018 05:38 PM IST | Source:

Budget 2018: Focus on rural income and productivity; positive for FMCG sector

Boost in rural sector should aid the fragile rural recovery and spur consumer demand.

Anubhav Sahu @anubhavsays

As expected, the government has announced a series of measures in the Union Budget to aid farm productivity, infrastructure and agriculture allied sectors, which improves prospects for the rural income. FMCG, food processing companies and the companies involved in agriculture allied sector should benefit from the incremental demand because of these measures.

MSP: Rural income anchor point

As we said in our strategy note, substantial increase in MSP (Minimum Support Prices) has historically, aided rural consumption demand. So interestingly, whenever, Government has taken steps to mitigate pain in rural sector say in form of higher MSP, sectors like consumer staples have responded positively and outperformed the broader benchmark.

Government announced a key policy measure that MSP would be 1.5x the cost of farm production. Government has already declared MSP for the majority of Rabi crops and would be extended to Kharif crops, as well.


Source: Ace equity, moneycontrol, Reuters

Non-farm productivity improvement



There has been a substantial push for the agriculture allied sector. Budget allocation for the aquaculture is more than doubled while that for dairy farming it is up 36%. Companies in this focus area to look at are Avanti feeds, Godrej Agrovet, Apex frozen foods, Parag Milk Foods, Waterbase, Hatsun Agro.

Further, focused infrastructure funds have been announced for the fisheries and animal husbandry sectors for financing infrastructure requirements. Funds, namely, Fisheries and Aquaculture Infrastructure Development Fund (FAIDF) and Animal Husbandry Infrastructure Development Fund (AHIDF) would have a Corpus of Rs10,000 crore.

Additionally, facility of Kisan Credit Cards has been extended to fisheries and animal husbandry farmers to help them meet their working capital needs.

Strong push for food processing industries

Budget allocation for the center schemes on food processing is more than double that of last year’s revised estimates. Further Government launched a programme, ‘‘Operation Greens’’ (Corpus: Rs 500 crore), to promote Farmer Producers Organizations (FPOs), agri-logistics, processing facilities and professional management. Here, it is worth mentioning that government plans to have 12 mega food parks (Rs 1560 crore) and 101 projects for the cold chain infrastructure (Rs 1100 crore).

Companies gaining attention in this space is ITC, Manpasand beverages, Prataap snacks, Venkys ltd, Jain Irrigation.

Venkys also benefits from the priority given to animal husbandry sector in this budget.

Chart: Budget allocation for food processing schemes/ Pradhan Mantri Kisan Sampada Yojana (Rs. Crore)



Boost in rural sector should aid the fragile rural recovery and spur consumer demand, in our view. FMCG companies having higher share of sales from the rural economy shall benefit the most. Dabur, Emami, HUL, Jyothy labs are among the key companies to look at having 40-50% sales from the rural economy.

Both Dabur and Emami have called out improved demand sentiments in rural areas in their recent analyst calls post Q3 result. Colgate, though have a good rural exposure may not benefit much given the oral care market share traction visible for Dabur and Patanjali. In this regard, JHS Sevengaard, a contract manufacturer for both Dabur and Patanjali should also benefit, given its expanded operations (new capacity) reported in Q3FY18 results.

Chart: Share of FMCG sector sales from rural areas


One of the key FMCG company to look at in this space is ITC, which at one hand is relieved due to no further negative news on cigarette  taxation, on the other hand  is among the better positioned company in the food processing value chain and valuation (26x 2019e earnings).

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First Published on Feb 1, 2018 05:16 pm
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