Fast forward for FMCG

Price cuts, volume growth push up sales after four quarters.

Driven largely by price reductions and the consequent demand growth, the fast-moving consumer goods sector is on a roll.

After flat sales growth for four consecutive quarters, all the big boys "" Hindustan Lever, Procter & Gamble, Godrej Industries, Dabur and Marico Industries "" are back on track and reported spectacular growth during the quarter ended March 2005.

Procter & Gamble stole the show with a hefty 25.6 per cent rise in sales, followed by Godrej Industries (22.56 per cent), Dabur (8.63 per cent) and Marico (8.50 per cent) in the last quarter of the last financial year.

Colgate sales grew 3.85 per cent compared with a 15.5 per cent decline during the quarter ended December 2004. Hindustan Lever's sales grew at 6.50 per cent "" a 16-quarter high.

The 12 FMCG companies manufacturing detergent, toiletries, liquid soaps, hair oils and shampoo posted a record 6.43 per cent growth in sales in the three months ended March 2005 "" the highest after March 2001.

Though the volume growth has not translated into growth in profits (Hindustan Lever showed declining profit for five quarters in a row, so did the aggregate net profit of the FMCG sector), the stock market has reacted positively. FMCG sector scrips have gained an average 16 per cent in the current quarter so far.

Says Saugata Gupta, chief (marketing), Marico Ltd, "There has been a lot of bottoming out. The industry being cyclical, there is bound to be an uptrend now. In value terms, the pricing pressure has eased."

Agrees Hoshedar K Press, executive director and president of Godrej Consumer Products Ltd (GCPL). He feels the all-round growth will continue. "We have no reason to believe that the growth is category-specific."

A P&G spokesperson is equally bullish and says the FMCG industry holds great promise as markets here are still underdeveloped.

Most industry players, however, feel the growth story cannot be for all categories. Gupta, for example, says it will be too ambitious to expect growth across the board. "Certain categories where there is low penetration and where the affordability factor comes into play "" like health foods and personal care products "" will grow. But you can not expect categories like detergents, for instance, to see phenomenal growth."

Nirav Sheth, analyst at Brics Securities, agrees, "FMCG slowdown was not across the board and hence the recovery will also be sector specific. Low penetrated categories will continue to post growth whereas mature categories are unlikely to see any significant recovery."

Analysts also say that the demand growth is unlikely to slow down even if rising input costs are passed on to the consumer as in the case of HLL and Colgate recently. Some categories with low penetration may benefit from higher distribution reach, they say.

Sheth, however, sees little scope for a price increase. "It is highly unlikely that pricing strategy will be reversed, especially since price cuts have led to strong volume growth. P & G for instance is likely to target a much higher market share in detergents before it reverts to a more rational pricing strategy".

Press says this year will see some price increases due to cost push but innovation, communication and distribution will play a larger role than price.

On the role of regional players in the FMCG sector growth, analysts say they are likely to remain niche players, as rising commodity prices would mean that they would have little leeway to operate at a significant discount to branded players.

Says analyst Nikhil Vora of SSKI Securities,"Regional players, though profitable, are now struggling to grow. Also, as far as new entrants are concerned, there is little room in the bigger segments".