Fast moving consumer goods (FMCG) companies reported a strong 15-20 per cent growth in revenue for the June quarter, as the demand for daily-use items remained buoyant despite inflationary pressure.
Companies aided the process by pushing offers and promotions aggressively, resulting in their advertising and sales promotion expenditure remaining steady at 12-13 per cent of sales. Offers could be found in categories such as soaps & detergents, hair oils and shampoos, among other segments, as firms tried to keep the momentum going.
The result was strong revenue growth in these segments, aided largely by volumes. Market leader Hindustan Unilever (HUL), for instance, reported 24 per cent revenue growth in soaps and detergents. Godrej Consumer (GCPL), number two in soaps, reported 42 per cent revenue growth, though hair colour, another important category for it, saw only five per cent growth.
Analysts attribute the single-digit growth in hair colour to the fall in discretionary spending, the first casualty in an inflationary scenario. “Consumers tend to keep out items that are not pressing in nature. Single-digit growth in hair colour for GCPL was partly because of this,” says Abneesh Roy, associate director (institutional equities), research, Edelweiss Securities.
Thanks to the overall sales momentum, as well as a general check on costs, companies reported profit growth in excess of 30 per cent. HUL was an exception, seeing an over two-fold jump in net profit to Rs 1,331 crore during the quarter, aided by the sale of properties of Rs 607 crore. Its profit after tax but before exceptional items rose 48 per cent to Rs 855 crore. GCPL’s net grew 31 per cent.
On an average, most companies saw their operating margins grow 100 to 160 basis points during the quarter. Analysts say this was due to some softening in commodity prices. Copra, which goes into the making of coconut oil, was one such input. Says Chaitanya Deshpande, executive vice-president and head, investor relations and M&A, Marico, “The quarter witnessed a sharp decline in copra prices that led to an overall reduction in input costs.
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The market price of copra, the input for coconut oil, which accounts for 40 per cent of the group’s raw material cost, was 38 per cent lower, year-on-year. This certainly helped.”
| REPORT CARD | ||||||
| Companies | Net sales (Rs crore) | Net profit (Rs crore) | ||||
| Jun ‘11 | Jun ‘12 | % Change | Jun ‘11 | Jun ‘12 | % Change | |
| ITC | 5,767.47 | 6,652.21 | 15.34 | 1,332.72 | 1,602.14 | 20.22 |
| Hind. Unilever | 5,495.91 | 6,250.15 | 13.72 | 627.16 | 1,331.19* | 112.26 |
| Asian Paints | 2,257.10 | 2,539.25 | 12.50 | 263.66 | 288.38 | 9.38 |
| Nestle India | 1,763.05 | 1,986.58 | 12.68 | 213.83 | 245.97 | 15.03 |
| Dabur India | 1,204.58 | 1,461.97 | 21.37 | 127.74 | 149.40 | 16.96 |
| Godrej Consumer | 997.84 | 1,388.64 | 39.16 | 239.28* | 130.46 | -45.48 |
| Marico | 1,041.40 | 1,267.21 | 21.68 | 85.00 | 123.84 | 45.69 |
| Britannia Inds. | 1,102.97 | 1,221.62 | 10.76 | 41.80 | 43.45 | 3.95 |
| Colgate-Palm. | 611.10 | 736.08 | 20.45 | 100.44 | 117.42 | 16.91 |
| GlaxoSmith C H L | 653.38 | 729.73 | 11.69 | 82.46 | 106.60 | 29.27 |
| *Includes Income from extra-ordinary items Source: Capitaline; Compiled by BS Research Bureau | ||||||
Still, companies are beginning to sound a note of caution as the the dry spell continues into the second half of the monsoon season. The weather office has declared 2012 a drought year, meaning an impact on crop output and, hence, rural income and demand. Analysts and companies alike expect the second half of 2012-13 to be tough, as slowdown pangs begin to bother. “There is always a lag effect in FMCG and that will begin to show in the second half,” says Kaustubh Pawaskar, FMCG analyst, Sharekhan.