Second quarter results declared by consumer product firms in the past week show the emphasis on volume-led growth continues despite inflationary pressures.
Last year, companies benefited from benign commodity prices in the June-September quarter, allowing them to focus on volumes without having to increase price.
This year, there is no such cushion, as both agri and crude-linked commodities have rallied steadily.
In the past six months, for instance, crude has risen15 per cent to touch the $80-a-barrel mark, while edible oils (such as palm oil, copra, vegetable oil, etc) have gone up 20 per cent at the same time.
Despite this, the underlying volume growth reported in the second quarter vis-a-vis the corresponding period last year was 10-15 per cent. Last year, volume growth reported during the second quarter was five to 10 per cent, says Anand Shah, senior fast moving consumer goods (FMCG) analyst at Mumbai-based brokerage house, Angel.
"So, the difference is at least 500-basis points between this year and last year," he says.
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Selective pricing
The key factor for this spurt in volumes has been a cautious pricing policy, which meant companies selectively raised prices. The band for the quarter was three to eight per cent, largely to contain input cost pressures. For instance, Marico took a price rise of three to five per cent in large packs of Saffola and Parachute in response to input cost pressures, while Dabur raised by three to four per cent in hair oils and juices.
| FAST MOVERS | ||||||
| (Rs Cr) | Net Sales | Net Profit | ||||
| Sep-10 | Sep-09 | %chg | Sep-10 | Sep-09 | %chg | |
| Asian Paints | 1,810.79 | 1,723.93 | 5.04 | 214.70 | 268.43 | -20.02 |
| Colgate-Palmolive | 551.77 | 487.26 | 13.24 | 100.30 | 89.70 | 11.82 |
| Dabur India | 972.77 | 847.80 | 14.74 | 160.35 | 139.00 | 15.36 |
| Gillette India | 247.01 | 177.46 | 39.19 | 42.89 | 38.32 | 11.93 |
| Godrej Consumer | 952.76 | 575.59 | 65.53 | 130.41 | 93.00 | 40.23 |
| Hindustan Unilever | 4,680.87 | 4,228.11 | 10.71 | 533.82 | 540.72 | -1.28 |
| ITC | 5,061.20 | 4,352.26 | 16.29 | 1,246.74 | 1,009.91 | 23.45 |
| Marico | 778.77 | 692.21 | 12.50 | 71.56 | 62.35 | 14.77 |
| Nestle India | 1,637.30 | 1,302.23 | 25.73 | 218.56 | 182.76 | 19.59 |
| P&G Hygiene | 227.81 | 225.46 | 1.04 | 31.36 | 51.48 | -39.08 |
| Tata Global | 1,438.90 | 1,397.29 | 2.98 | 69.33 | 120.56 | -42.49 |
| Whirlpool India | 628.11 | 539.92 | 16.33 | 30.55 | 26.28 | 16.25 |
| Emami | 272.38 | 215.76 | 26.24 | 53.51 | 38.90 | 37.56 |
| Source: Capitaline; Compiled by BS Research Bureau | ||||||
"I don't see big price hikes happening in the coming months," says Dabur chief executive Sunil Duggal, of the firm's pricing policy. This is seconded by Hindustan Unilever's managing director, Nitin Paranjpe, who says price rises would be based on commodity inflation, as well as the competitive scenario in the coming months. Analysts tracking HUL say it would continue to focus on volume-led growth, in keeping with the momentum seen in the past few quarters.
After remaining silent for most of 2009-10 and the first quarter of 2010-11, HUL raised prices by seven to eight per cent in soaps and about eight per cent in Rin during the second quarter this year. This saw the company report its third consecutive quarter of double-digit growth, in the region of 14 per cent for the June-September period. From two per cent in the September quarter last year, volume growth went up to five per cent in the December quarter of 2009-10, staying steady at 11 per cent in the March and June quarters, respectively, said R Sridhar, chief financial officer, at the time of declaring the company's results last week.
But pricing remained negative by 3-3.5 per cent in comparison to the year-ago period, Sridhar had said. On an average, erosion in operating profit margins as a result of a cautious pricing policy in the second quarter this year was in the region of about 100-200 basis points vis-a-vis last year.