Graphically Speaking

Every slump has a silver lining

Discretionary consumption has been hurt, but some businesses could see renewed investor interest

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Published 4 months ago on Jun 19, 2020 Read

Needless to say, times are tough. Pretty much every other inbox has one ‘I regret to inform you’ email about salary cut or layoff. The new smartphone will have to wait for a few more months and you might as well remove that denim jacket from your shopping cart. As everyone struggles to make ends meet, Crisil expects 16-30% decline in revenue for discretionary segments. If partial lockdown continues till second quarter of this fiscal, de-growth might be steeper at 30-40%, suggests their research.

Consumer essentials space will also not be spared, in case of this extended vulnerability, with revenue getting knocked back by 6-7%. However, as people turn brand agnostic and switch to alternatives, urban demand for essentials is expected to recover within a month, as opposed to rebound in discretionary spending which might take over a year. According to Crisil’s estimates, household appliances, readymade garments and QSR will witness the sharpest decline as liquidity will be squeezed due to stretched working capital.

Now, the good news. While the slump will cause valuations of consumer businesses to fall, new bargains with long-term prospects might emerge from it, thus creating fresh investment opportunities for private equity and venture capital players. Health- and wellness-brands will become key investible themes as hygiene, affordability and convenience become new priorities for consumers. Due to lower rental expenses, cloud kitchens will also attract investors as they are better placed for revival than dine-in restaurants. E-commerce, too, will witness renewed interest with rise in demand for contactless doorstep deliveries.

 

Additionally, as consumers will start opting for availability, PE and VC players might place more bets on local/SME brands with a strong distribution network. Crisil also expects the lockdown to strengthen interest in online learning, consultation and recreation. Suffice to say, ‘One man's ceiling is another man's floor’.