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Will FMCG buck the trend in June quarter?

ITC, Dabur & Godrej Consumer could be outperformers, analysts say

Viveat Susan Pinto Mumbai
Last Updated : Jul 08 2013 | 11:08 PM IST
All eyes will be on fast-moving consumer goods (FMCG) companies as the first quarter results season nears. Will the sector repeat its March quarter performance, when some companies did manage to arrest moderation in volume growth on the back of some prudent measures or will it plummet into the abyss of low volumes and margins? The verdict is mixed, with some analysts saying a few companies are likely to outperform the sector in the first quarter of FY14.  Bank of India-Merrill Lynch in its just-released India Strategy Report has hedged its bets on ITC, Titan and Dabur, describing these as potential result outperformers. Included in this list is Godrej Consumer Products and Colgate as well. In the view of research analysts Jyotivardhan Jaipuria and Anand Kumar, Hindustan Unilever Ltd (HUL), Asian Paints and Nestle are the potential underperformers.

Volume growth will be muted for HUL, Asian Paints and Nestle, while niche-focus companies such as Titan and Dabur will post better volumes, Jaipuria and Kumar say. “ITC, on the other hand, continues to be a major Sensex earning contributor,” the two add in their report. It is not only Bank of India-Merrill Lynch. Even Morgan Stanley, which has hedged its bets on ITC, Dabur and GCPL, says clearly that these companies will post solid results. “We expect further moderation in volume growth especially across discretionary product categories. We expect gross margin expansion across companies and most of such expansion to be re-invested in brands, which means higher ad spends,” said Ridham Desai,  Sheela Rathi and Utkarsh Khandelwal of Morgan Stanley.  “Jubilant will likely disappoint,” the three add.

In the last few quarters, companies that count on discretionary spends for their sales have seen their volumes slide substantially. Packaged foods companies in particular have been the hardest hit, including Nestle and food retailers such as Jubilant, whose same-store sales growth is down to single digits. Very clearly, the picture is not likely to dramatically change for these companies, as food inflation continues to be high. In the last few months, vegetable prices have shot up 30 to 40 per cent. While the government has just sanctioned the food security Bill through an Ordinance, it is likely to put further pressure on the Centre's crumbling finances. That is hardly good for the long-term health of the economy and consumers in general.

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First Published: Jul 08 2013 | 9:36 PM IST

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