The recent political crisis in Nepal, triggered by widespread protests and the resignation of Prime Minister K.P. Sharma Oli, has prompted Indian FMCG giants to closely monitor the situation, but analysts suggest the impact on their revenue will likely be limited. While the unrest raises concerns about potential disruptions, the primary focus for these companies is the safety and well-being of their employees and partner teams in the region.
Limited Revenue Impact
Nepal accounts for a relatively small portion of the overall sales for most Indian FMCG companies. For instance, Varun Beverages, PepsiCo's bottling partner, derives approximately 3% of its consolidated revenue from Nepal. Similarly, companies like ITC, HUL, and Dabur see only 2-3% of their sales coming from the Nepalese market. This limited exposure suggests that the political instability is unlikely to have a material impact on these companies' quarterly or annual earnings.
Focus on Safety and Supply Chains
Despite the limited revenue exposure, Indian FMCG companies are taking the situation seriously. Their immediate priority is ensuring the safety of their employees, distributors, and manufacturing staff in Nepal. Companies have issued advisories urging their staff to exercise caution and maintain close contact with local partners.
Another key concern is the potential disruption to supply chains. Nepal relies heavily on road transport for trade, making it vulnerable to disruptions caused by protests, strikes, or border delays. Indian exporters are particularly concerned about perishable goods, pharmaceuticals, and industrial inputs, which are sensitive to delays. The unrest may disrupt bilateral trade at major border crossings, including Raxaul-Birgunj and Sunauli-Bhairahawa, potentially hampering the flow of goods between the two nations. This situation could lead to supply chain issues and economic losses for businesses on both sides of the border.
Indian FMCG Presence in Nepal
Many major Indian FMCG companies have a significant presence in Nepal, operating through various models. Some, like Dabur, ITC (through Surya Nepal), and Britannia, have established local manufacturing facilities. Others, such as Marico, Patanjali, and Reliance Consumer, primarily operate through local distributors and partnerships. Reliance Consumer has also partnered with Nepal's Chaudhary Group for both manufacturing and distribution. The Chaudhary Group, Nepal's largest conglomerate, recently formed a joint venture with Indian snack maker Bikaji Foods to expand its FMCG footprint.
Historical Context and Strategic Importance
Analysts point to the political instability in Bangladesh as a point of comparison. During the unrest in Bangladesh, some consumer firms experienced a business impact, while others navigated the situation relatively well. While Nepal's contribution to the revenue of Indian FMCG companies may be small, its strategic importance in South Asia makes the situation significant for long-term planning.
Broader Economic and Geopolitical Implications
The political turmoil in Nepal has broader economic and geopolitical implications for India. India is Nepal's largest trade partner, and any disruption to bilateral trade could have significant consequences. The instability could also create an opening for China to increase its economic and political influence in Nepal, posing a challenge to India's regional interests.
Overall Assessment
While the political crisis in Nepal is a cause for concern, the Indian FMCG sector appears to be more at risk from a safety perspective. The limited revenue contribution from Nepal suggests that the financial impact on these companies will likely be manageable. However, companies are closely monitoring the situation, prioritizing the safety of their employees and working to minimize any potential disruptions to their supply chains.
