Robust Q1 results on the cards

FMCG companies are expected to post healthy first quarter results on the back of increased consumer spending and inorganic growth. Though personal care and processed food products are estimated to perform better, rising input costs may hurt growth for some companies. According to Morgan Stanley, the margin expansion of Hindustan Unilever, India's largest consumer goods company, may be possibly limited because of a rising cost burden and potential increase in competitive pressure.

Factors such as 35 per cent rise in palm oil prices are also likely to hit soap companies like Hindustan Unilever and Godrej Consumer, while increasing copra prices will impact hair care major Marico. Considering the rising input costs and inflation most of the FMCG companies had hiked their prices. HUL resorted to an average 5-10 per cent price hike for its soap brands, while Godrej consumer's portfolio got dearer by 5-8 per cent. However, the drop in sugar and wheat prices will benefit the companies manufacturing biscuits, breads and beverages added analysts.

Experts expect the price hikes to continue in the coming quarters if the inflation is not controlled and vegetable oil prices don't stabilise. Secondly, the imposition of 12.5 per cent VAT on cigarettes is likely to affect the performance of companies like ITC. The segment has already witnessed close to 15 per cent increase in prices.

"We expect the companies to post double digit top line and bottom line earnings. But margins might be under pressure as companies have resorted to price hikes to offset the rising input costs," said an analyst. The personal care and processed food products are likely to grow due to strong consumer demand and huge market potential, he added.

Similarly rural markets are estimated to bring good results for the FMCG companies. The emergence of organised retail, especially agro-based chains and rising consumer demand would boost personal care and processed food products in these markets. According to an analyst, " The projects like e-Choupal (ITC), Project Shakti (HLL) and Adhar (Godrej) have provided a platform for companies to push their products in the rural markets." Over the longer term, analysts expect inorganic growth strategies of FMCG companies to reflect upon their top line and bottom line.