The disruption in demand, production and supply chain caused by the extended nationwide lockdown to contain the Covid-19 pandemic will knock back revenue growth by 2-4% for the consumer essentials sector, and 16-30% across discretionary manufacturing and consumer services this fiscal, a CRISIL Research analysis¹ shows.

And this is only in the base-case scenario of the lockdown ending in the first quarter of this fiscal. In case of extended vulnerability due to fresh extension of lockdown into the second quarter, the fall could be a steeper 30-40%.

Discretionary segments such as household appliances, readymade garments and quick service restaurants (QSRs) will bear the brunt of the pandemic blow and see the steepest revenue declines under both scenarios as stretched working capital cycles will put a squeeze on liquidity and hurt profitability. These segments will also take the longest to recover post-lockdown, with discretionary spending taking up to a year to revive.

However, 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.

Says Rahul Prithiani, Director, CRISIL Research, “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/ SME manufacturers with a flexible logistics network. Retailers and fast-moving consumer goods companies have started tying up with food delivery service providers to suit consumers’ quest for convenience. The lingering fear of Covid-19 will also provide a boost to e-retail and cloud kitchens.”

All this will beat down valuations, delaying exits for private equity (PE) players from existing companies. However, the slump will throw up new bargains among consumer businesses with good long-term prospects, creating fresh investment opportunities for PE players.

CRISIL Research expects the health and wellness segment to emerge as the key investible theme for PE investors.

Says Anjali Nathwani, Associate Director, CRISIL Research, “Consumer foods, QSRs, e-commerce and technology-based consumer services firms, which have been the favourites of PEs, are also the new favourites of consumers given their changing priorities. Within these segments, health- and wellness-focused businesses such as online consultation and e-pharmacy will emerge as the key investible themes.”

For instance, 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.

The lockdown is also expected to strengthen consumer interest in online consultation, e-leaning and online recreation.

¹ Note: * For this analysis, CRISIL has classified the consumer goods sector under three broad categories:
1. Essential items manufacturing: Mostly non-durables with a shelf life of less than one year. Includes packaged foods such as biscuits, snacks, noodles, and branded pulses, rice, wheat flour and edible oil; personal care products such as soaps, shampoos and sanitisers; and home care products such as detergents, dish washers, toilet and floor cleaners, and disinfectants.2. Discretionary items manufacturing: Mostly durables with a shelf life of one year or more. Includes apparel, electrical appliances, electronics, furniture, dry fruits and cosmetics.3. Services: Cover QSRs, e-commerce, online marketplaces, café chains, food delivery platforms, pharmacy and grocery delivery.