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Research & development (R&D) expenditure for a few key fast-moving consumer goods (FMCG) companies was down in the financial year ended March. This took place even as the pressure to maintain both visibility and excitement with new or improved products grew, at a time when consumer spending remained tepid.
Hindustan Unilever (HUL), the country's largest FMCG company, spent 32 per cent less on R&D in 2012-13, according to its annual report, incurring an expenditure of Rs 104.4 crore versus Rs 155.4 crore the year before.
HUL was joined by Ghaziabad-headquartered Dabur India, whose R&D spends were down 42 per cent to Rs 2.2 crore versus Rs 3.7 crore the previous year. GlaxoSmithKline (GSK) Consumer HealthCare, the maker of products such as Horlicks, Eno and Sensodyne, cut R&D expenditure nearly 16 per cent to Rs 2.6 crore for the period under review, versus a little above Rs 3 crore a year before. Mumbai-based Marico spent nearly seven per cent less, incurring an expense of just about Rs 5.95 crore versus Rs 6.4 crore a year before.
Analysts attribute lower level of localisation for products borrowed from global portfolios of multinational companies as the reason for the lower R&D spending. "The costs are not substantial when you are tweaking a global product to suit local conditions. Barring foods, which has to take into account local tastes, categories such as home and personal care do not require a very high level of customisation. This means your R&D spends will not be huge," says Abneesh Roy, associate director (research), Edelweiss.
At a time when operating margins have been under pressure due to higher ad spends, consumer product companies in general, say analysts, have trying hard to control allied expenditure. R&D, says Nitin Mathur, consumer & retail analyst at Mumbai-based brokerage Espirito Santo Securities, appears to bearing the brunt of this move.
In recent quarters, advertising & sales promotion (ASP) expenditure rose from 11-12 per cent of sales to 13-16 per cent as companies gained from lower commodity costs. “This has been used to either cut product prices or push up ad and promotion expenditure,” Mathur explains. “It obviously impacts margins, as the pressure to maintain volumes increases.”
Hindustan Unilever (HUL), the country's largest FMCG company, spent 32 per cent less on R&D in 2012-13, according to its annual report, incurring an expenditure of Rs 104.4 crore versus Rs 155.4 crore the year before.
HUL was joined by Ghaziabad-headquartered Dabur India, whose R&D spends were down 42 per cent to Rs 2.2 crore versus Rs 3.7 crore the previous year. GlaxoSmithKline (GSK) Consumer HealthCare, the maker of products such as Horlicks, Eno and Sensodyne, cut R&D expenditure nearly 16 per cent to Rs 2.6 crore for the period under review, versus a little above Rs 3 crore a year before. Mumbai-based Marico spent nearly seven per cent less, incurring an expense of just about Rs 5.95 crore versus Rs 6.4 crore a year before.
Analysts attribute lower level of localisation for products borrowed from global portfolios of multinational companies as the reason for the lower R&D spending. "The costs are not substantial when you are tweaking a global product to suit local conditions. Barring foods, which has to take into account local tastes, categories such as home and personal care do not require a very high level of customisation. This means your R&D spends will not be huge," says Abneesh Roy, associate director (research), Edelweiss.
At a time when operating margins have been under pressure due to higher ad spends, consumer product companies in general, say analysts, have trying hard to control allied expenditure. R&D, says Nitin Mathur, consumer & retail analyst at Mumbai-based brokerage Espirito Santo Securities, appears to bearing the brunt of this move.
In recent quarters, advertising & sales promotion (ASP) expenditure rose from 11-12 per cent of sales to 13-16 per cent as companies gained from lower commodity costs. “This has been used to either cut product prices or push up ad and promotion expenditure,” Mathur explains. “It obviously impacts margins, as the pressure to maintain volumes increases.”
Companies, on an average, saw operating margins shrink by 100 to 200 basis points in the fourth quarter of FY13, with the estimate being that the picture could be no different in the June quarter of the new financial year.
Mumbai-based Angel Broking’s Q1 preview for FY14 said it saw a mixed performance from consumer goods companies on operating margins, with some holding fort and some seeing a slide, thanks to higher ASP spends. “Colgate, Marico, HUL and Nestle could see a slide,” consumer goods analyst V Srinivasan said. “While Dabur, Godrej Consumer and GSK Consumer might see their operating margins move up.”
