When people face financial uncertainty they tend to stick to essential purchases; the financial performance of Bangladeshi blue-chip companies in the April-June quarter has again proven this.
The disclosed financial updates by more than a dozen companies listed with the stock market reveal that consumer staples companies have had an average 11 percent year-on-year growth in sales over the period, while other sectors have suffered negative growth; with consumer discretionary items hardest hit.
Two-thirds of the last quarter were lost to a nationwide shutdown when people were stuck at home.
Consumer staple products are fast moving ones that people believe are essential to their daily lives. Food, hygiene, personal care and other essential items fall under this category.
A recent research report by brokerage firm IDLC Securities, obtained by The Business Standard, also reveals that analysts had been anticipating up to a five percent decline in sales of essential items in the second quarter of 2020 compared to the same period of the previous year. However, the sector outperformed, thanks to the administrative stance that had allowed businesses of essential items to run amid the shutdown.
Also, consumers' natural behaviour helped consumer staples to keep the pace, believe experts.
"In the months of the shutdown, people focused on essential purchases and refrained from discretionary spending," said CFA Charter holder Asif Khan, a partner at EDGE Research and Consulting, an investment research firm.
Over the same quarter, other sectors–including tobacco, construction, consumer discretionary, and telecommunication–absorbed the pandemic and shutdown shocks.
The calculation of the consumer staples sector included the performance of haircare giant Marico; it registered 10 percent sales growth in the second quarter of 2020, compared to the corresponding quarter a year ago.
GlaxoSmithKline–the health food drinks market leader–witnessed a 13 percent year-on-year decline in sales in April-June while it managed to post two percent profit growth ultimately.
Reckitt Benckiser Bangladesh–the global personal hygiene giant–rationally witnessed a 45 percent sales growth as people were looking for its products like Dettol to keep the virus at bay.
The three consumer staples companies posted an average revenue growth of 11 percent, while the selected companies from five different sectors on average saw a 16 percent year-on-year decline in their April-June revenue and over 21 percent fall in net profits.
Another CFA Charter holder Md Ashaduzaman Riadh, chief investment officer and a director at brokerage firm United Securities, said, "In spite of the negative impact on household income due to the pandemic, people maintained their consumption of necessary items which are difficult to cut."
Also, the lockdown time spent at home increased the demand for consumer staples, he added.
However, in the case of discretionary items that are non-essential products and services, consumers delayed bigger-ticket purchases due to prevailing income uncertainty, he said.
Footwear market leader Bata Shoe suffered an 85 percent year-on-year sales decline in the last quarter, while consumer electronics and electrical appliances multinational Singer Bangladesh Ltd registered a 43 percent decline in its April-June sales.
Citing McKinsey research survey findings, Ashaduzaman Riadh said a feeling of guilt might have been associated with discretionary spending, even among those who can afford them, particularly for some more conspicuous categories.
The international market research firm recently revealed that even though respondents consistently cited uncertainty over the crisis' impact on their income as the top reason for planning to trade down or forego purchases, one-third of Chinese mobile-phone shoppers cited feelings of guilt as their reason for doing so.
Similarly, one in five Indian consumers who planned to trade down or forego purchases of large domestic appliances said the main reason behind their refraining from such purchases was that it did not feel right to spend, given the current social context.
It remains to be seen whether this sentiment will change in the coming months, even here in Bangladesh, said Riadh.
Md Tareq Ibrahim, chief executive officer at CWT Asset Management Company Ltd, believes electronics and electrical appliances are recovering now as life is getting back to normal.
"So is voice call revenue of telecommunication companies like Grameenphone that saw a double-digit decline in the last quarter as people were less engaged in formal communication usually demanding a voice call over cellular networks," he said.
An increased use of the Internet helped Grameenphone achieve 16 percent higher data revenue and partially offset the voice call fallout.
"Internet data usage is also likely to see steady growth in the coming days," he added.
Construction material businesses suffered in the last quarter as construction activities were stalled in the days of shutdown.
Cement company Heidelberg's sales fell by 38 percent, LafargeHolcim suffered a 41 percent sales fall, while paints giant Berger's sales fell by 49 percent in the April-June quarter this year compared to that a year ago.
Analysts at the brokerage firm wrote to their clients that the team had conducted the analysis based on 14 companies' disclosures for the April-June quarter.
The companies are prominent names from their respective sectors and therefore the analysts expect them to be the representative of the respective industries.
Most manufacturing companies will disclose their April-June performance from late October to early November since their year-end is in June.
After the detection of the first Covid-19 cases on 8 March, Bangladesh entered a prolonged "holiday" from March 26 to May 31. The 66-day shutdown slowed down economic activities.
During the first three weeks of the general holiday, all businesses except those for emergency services like food, pharmaceuticals and banking were closed.
During the mid-April, the textiles and apparel companies restarted their operations.
The shutdown ended on May 31, after which all businesses resumed their operations from June.
As most of the economic activities remained stalled for almost two-thirds of the April-June quarter, the shutdown affected all businesses.