Despite surging inflation and price increases that fast moving consumer goods (FMCG) companies took during the third quarter of the current financial year, they’re likely to record good topline growth. Analysts say it is likely to be 15-20 per cent, even as bottom line growth for the period could be lower, at 10-12 per cent.
Price increases that firms undertook during the quarter were not proportionate with commodity inflation for the sector. “This aided top line growth,” says Arnab Mitra, FMCG analyst at Mumbai-based brokerage IndiaInfoline.
On an average, companies raised prices by five to 10 per cent during the quarter, lower than the inflation that key raw materials saw in the period. Crude, for instance, moved up 22 per cent, while copra and palm oil spiked by 23 and 32 per cent respectively, says Amnish Aggarwal, senior vice-president, research, Motilal Oswal Securities. Copra is a key input in hair oil, while palm oil is used to make soaps.
So, while producers of these products, including companies such as Marico, Dabur, Hindustan Unilever and Godrej Consumer could see some pressure on gross margins, they can take respite from the fact that overall sales were good, thanks to calibrated price rises, says Mitra of IndiaInfoline.
Anand Mour, FMCG analyst at brokerage Indiabulls Securities, says companies were also careful in their advertising & sales promotion (ASP) expenditure, which as a percentage of sales could be lower in the quarter in comparison to previous ones. Mitra says ASP spending as a percentage of sales was 13-14 per cent in the recent quarters. This time, it could be in 10-11 per cent.
This despite the fact that the quarter saw the Dussehra-Diwali-Christmas period togetherm, as opposed to the previous year when Dussehra-Diwali was in the second quarter.
The need to rein in expenditure, explains Mour of Indiabulls, has been key to companies during the quarter. “Commodity inflation has acted as a trigger here. When you are battling pressures on one end, you try and make sure you can control expenditure elsewhere.”