Improved sales growth was led by volumes as well as price rise, but there was no respite from margin contraction.
While operating profit margin (OPM) tanked 306 basis points (bps) year-on-year to 14.1 per cent, net profit margin (NPM) adjusted for exceptional items of Rs 64 crore (Rs 44.5 crore in the corresponding quarter a year ago) dropped by a little over 200 bps to 11.2 per cent (as against estimates of 13.1 per cent). However, OPM rose 200 bps sequentially, while NPM remained stable, which is a positive sign.
Sales growth of 12.1 per cent at Rs 5,128 crore exceeded expectations and was better than the 9.5 per cent rise seen in the first half of the current financial year. It was helped by the double-digit volume growth of 13 per cent and a price rise of five-eight per cent undertaken in the September 2010 quarter, indicating gradual return of pricing power.
Unlike past several quarters, soaps, detergents and personal care products (categorised as home and personal care products that contribute 75 per cent to revenues) have been the growth drivers, as revenues from the category rose 11.6 per cent to Rs 3,848 crore compared to 7.4 per cent growth in the first half and 6.4 per cent in 2009-10. However, profit before interest and tax (PBIT) margin declined 404 bps to about 17 per cent due to high competition in soaps and detergents (45 per cent of revenues).
The food business (beverages, processed foods and ice creams) continued to do well, with revenue growth of 12.6 per cent at Rs 872 crore. Despite high tea and coffee prices, PBIT margin was maintained at about 10 per cent mainly led by beverages (largest category in foods).
Going ahead, the outlook for volume growth is robust and price rise undertaken in the September 2010 quarter will continue to benefit. However, structural margin contraction is expected to continue due to rising competition, input costs and advertising expenditure.