Net sales likely to grow around 15 to 18 per cent in June quarter.
Despite the rising tide of inflation, consumer product companies are likely to report good topline growth for the three-month period ending June 2011. The growth in net sales is likely to be around 15-18 per cent with underlying volume growth hovering around 12-13 per cent, according to analysts tracking the sector.
Price-led growth is likely to be around 3-5 per cent for the quarter under review indicating that companies continue to take a calibrated approach to price increases.
At a time when headline inflation, as measured by the wholesale price index (WPI), remains above the nine-per-cent-mark, a cautious approach to price increases is just right, say chief executives of consumer product companies. Last month’s increase in cooking gas and fuels such as diesel and petrol is only likely to push up inflation above the 10-per-cent-mark.
So companies, say executives, are hardly likely to risk adding to inflationary pressures with significant price increases of finished products.
Says Sunil Duggal, chief executive officer, Dabur India Ltd, “Given the current scenario a cautious pricing policy is just right.” This point is endorsed by A Mahendran, managing director, Godrej Consumer Products Ltd (GCPL), “Not everything has been passed to consumers. The pass-on has been necessary when it has been impossible to absorb input cost pressures.”
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For the quarter under review, consumer product firms took price increases of just 3-5 per cent when the actual quantum should have been around 8-10 per cent, says Shirish Pardeshi, senior fast moving consumer goods (FMCG) analyst, Anand Rathi. “Naturally, there will be an impact on margins as a result of this,” he says.
Gross margins, according to Pardeshi, are likely to be down by around 100-300 basis points for the quarter under review.
Whilst firms sacrifice margins to ensure volume growth, the tide could turn in the future with a softening in agri-commodities thanks to near-normal rainfall, say analysts. June this year saw below normal rainfall, but July has seen the monsoons pick up in many parts of India.
According to experts, July is the key planting month during the June-September period, when rainfall distribution over major crop regions is important for sowing. Rainfall was weak in the month of June last year as well, but picked up subsequently thereafter.
| FMCG FACTSHEET | ||||||
| Company | Net sales (in Rs crore) | PAT (in Rs crore) | ||||
| Q1FY12 (E) | Q1FY11 | Growth (%) | Q1FY12 (E) | Q1FY11 | Growth (%) | |
| ITC | 5,563.20 | 4,816.60 | 15.5 | 1,285.50 | 1,070.30 | 20.1 |
| HUL | 5,558.90 | 4,876.20 | 14 | 619.5 | 514.7 | 20.4 |
| *Dabur | 1,174.90 | 925.1 | 27 | 129.6 | 106.8 | 21.4 |
| Colgate-Palmolive | 613.4 | 528.8 | 16 | 112.2 | 121.9 | -7.9 |
| *GCPL | 996.8 | 643.1 | 55 | 138.6 | 76.1 | 82.2 |
| *Marico | 979.8 | 790.1 | 24 | 77.2 | 73.7 | 4.7 |
| * Dabur, GCPL and Marico are showing higher percentage growth in net sales because of consolidation of international acquisitions and also good performance in international markets Source: Prabhudas Liladhar | ||||||
Already prices of vegetable oils, wheat, pulses and sugar are down by 4-5 per cent in comparison to the year-ago, says Kaustubh Pawaskar, FMCG analyst at Mumbai-based brokerage Sharekhan.
If crude prices, currently over $100 a barrel, also come down, then firms will be a position to take a pause from price increases. A good monsoon has other implications too. From a rural point of view, demand and consequently consumption are likely to perk up with a good monsoon.
Already, most firms today derive over 20 to 30 per cent of their sales from rural areas. This trend is only likely to grow as companies focus hard on this segment with products that are affordable.