8888677771 | For India Inc, climate change is the new single biggest business risk | Business News

Its not just Hindustan Unilever Ltd, the country’s largest FMCG company, for which weather is the “single biggest business risk” today. From carmaker Hyundai to skincare company Emami and PepsiCo bottling firm Varun Beverages, unseasonal showers in summers, irregular weather patterns, and diverse rainfall patters – or climate change, in general – have started impacting the bottom line of India Inc.

“We can’t control the weather, otherwise there’s no reason why we should not grow. If you just control the rain Gods, we will take care of the rest,” said Ravi Jaipuria, Chairperson, Varun Beverages, while responding to an investor’s question on whether the company will register growth in the second half similar to what it did in the first.

While offering HUL’s near-term outlook, CFO Ritesh Tiwari said the situation on the weather front remains “erratic”. In terms of rural demand, the company said that it will have to watch out for the impact of monsoon and weather-related risk. “El Nino has come earlier, and we know that when it comes early in the season, it grows more,” Tiwari said during a call with investors in July.

It is not just the quantity of rain, but also the rain distribution and its timing that can have an impact, Tiwari said, emphasising that weather is the “only single business risk”.

Suresh Narayanan, Chairman and Managing Director, Nestlé India, recently pointed out that the current — almost 30 per cent — monsoon deficit and the El Nino effect could influence rural demand. “Although it may sound speculative, the rural sector’s substantial impact could lead to a corresponding decline in rural demand,” he said.

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While Nestle’s rural sales are around 20-25 per cent of its total sales in the country, HUL’s much higher at around 40 per cent from rural areas.

“We have seen unseasonal rains, heatwaves and a delayed monsoon. El Nino has set in early, which could impact later parts of monsoon. While monsoon has picked up pace off late, spatial variations persist. We have seen unfortunate floods in parts of the country. Consequently, cropping especially of rice and pulses seem to have been impacted…,” Narayanan said.

The situation on the weather front is a big challenge. “We’ve seen some extreme weather events playing out in the last few months, such as the unseasonal rains in the summer, followed by heat phase, and delayed onset of monsoon. Recently, the monsoon has picked up pace, and we’ve also seen unfortunate floods in parts of the country. El Nino has set in early and hence, that could impact the latter part of the monsoon,” said HUL CEO Rohit Jawa.

Nestle’s competitor Marico has offered an outlook similar to HUL. Unpredictable weather patterns can have a negative bearing on rural farm incomes. “Factors such as retail inflation dropping to sub-5 per cent levels, late pickup in monsoons, hike in kharif crop MSPs, and higher government spending continue to give hopes of a gradual recovery in rural sentiment, although, the extent of impact of spatial distribution of rainfall and erratic weather patterns on rural farm incomes may also have a bearing on sentiment in the near-term,” said Marico CEO Saugata Gupta during a call with investors.

Dabur’s beverage portfolio was impacted by unseasonal rains in North and West India during the June quarter. CEO Mohit Malhotra said, “The season has impacted beverages on account of summers being lower and 30 per cent of the consumption of beverages is out of home for us.”

“When the rains are there people don’t move out and the eating and drinking outlets don’t have that kind of a throughput; they are not able to sell that’s why the portfolio gets impacted,” Malhotra added.

While Dabur’s foods business grew 35 per cent, the beverages portfolio was down 2 per cent year-on-year impacted by the unseasonal rains. “If rains are not there, the marriage season is great, which is what we think it should be; or the Diwali season is great if the rain doesn’t play a spoilsport, then I think that season should not get impacted by beverages. But because the season is so heavy and it contributes to around 30- 40 per cent of the total consumption for the whole year, a little impact for the full year business definitely happens,” he said.

ITC said while the Indian economy remains resilient, “risks from the external sector; consumer price inflation (especially food); commodity price volatility; El Nino impact on monsoons and agri output – would be the key monitorables in the near term.”

Emami’s popular Navratna range sales declined 8 per cent in the June quarter. “As we have seen, the summer season was affected across the country by unseasonal rains, which impacted sales of our summer products across categories during the quarter. Navratna range was thus impacted by the unseasonal rains and declined by 8 per cent,” said Mohan Goenka, Emami’s director.

India’s top car makers have already faced a negative impact on account of erratic rain distribution, and have vouched for the impact it can have on sales in certain states.

While Maharashtra continues to lead the automobile sales in the country, Kerala has lost its sheen in the past over a couple of years due to recurring floods, a decline in rubber prices, and a slowdown in the Gulf. Kerala has traditionally been one of the top three markets, especially for diesel cars.

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“Kerala used to be in the top two or three markets in the country – today it is not even in the top nine. Kerala volumes have gone down due to floods in the recent years, decline in rubber prices globally reducing Kerala’s income, and third and the most important reason was decline in remittances from Gulf since a lot of people lost their jobs. Kerala has been replaced by Maharashtra in the top three, alongside the Delhi-NCR market,” Tarun Garg, Director (sales) at Hyundai Motor India Ltd. had told The Indian Express in an earlier interaction.

Executives at Maruti Suzuki India, the country’s largest carmaker, agreed that floods is among the key reasons impacting consumption trends.

Varun Beverages’ Jaipuria also offered an insight into how regional weather patterns have impacted some of its brands. “…our juice plant is located in the North, which primarily caters to the Northern region with Tropicana and dairy products. Due to heavy rains in the North – an abnormal occurrence, there was a decrease in demand. Ordinarily, we do not transport products from this plant to the south and west due to the high freight costs. This is precisely why we are establishing plants in Maharashtra and in the Eastern region, specifically in Gorakhpur,” he said.

Climate change and profits

WEATHER influences sales, and the bottomline. And irregular climate is an uncertainty that is biting companies plans, and profits. The year so far hasn’t made it easier for India Inc. If February was the warmest in over a century, March was unusually rainy, 26 per cent more rainfall than long-period average (LPA); August has been the driest since 1901, receiving 36 per cent less rainfall than its LPA.

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