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Sales growth for fast-moving consumer goods (FMCG) companies is likely to remain muted in the September quarter, as consumers remain unwilling to increase spending.
Unilever, the parent of the country’s largest FMCG company Hindustan Unilever (HUL), has already given a warning to its shareholders saying a continuing slowdown in emerging markets is going to keep profit growth low.
Mumbai-based research & analytics company ZyFin’s consumer outlook index for September, released on Tuesday, was at its lowest in a year at 39.1, down 1.4 points from August. “This indicates pessimism among consumers. Overall scores regarding spending continue to remain weak,” said Debopam Chaudhuri, vice-president, research, ZyFin.
While consumers remain a little optimistic about spending on vehicles, their outlook on spending for consumer goods, durables and non-durables, remains weak, Chaudhuri added.
Unilever derives 60 per cent of its revenue from emerging markets and counts countries such as India as a key in this pack. The Anglo-Dutch giant had increased its stake in HUL by 14.8 per cent in July in one of the largest open offers ever by a promoter.
Despite confidence in the India growth story in the long term, Unilever’s chief executive Paul Polman on Monday said sales growth in the September quarter was expected to fall to 3-3.5 per cent from five per cent in the June quarter owing to a sustained weakness in emerging markets.
Analysts Rohit Chordia and Anand Shah of Kotak Institutional Equities in a report released on Tuesday buttressed reinforced gloomy view for FMCG companies: “We expect further deceleration in year-on-year revenue growth, earnings before interest, taxes, depreciation and amortisation (Ebitda) and net income led by sustained volume and pricing weakness, higher advertising & sales promotion expenditure and allied overheads mitigating gross margin expansion.”
They also said volume growth in skin care, coconut hair oils, soaps, cigarettes and packaged foods could remain weak in the September, hitting margins of HUL, ITC, Nestle and Marico.
Analysts have already said volume growth for HUL was unlikely to exceed four-five per cent in the quarter. Nitin Mathur, consumer & retail analyst at Mumbai-based Espirito Santo Securities, said: “I don't think it will cross this threshold level in the second quarter despite the fact that HUL and most other FMCG companies had aggressively ramped up sales promotions in categories such as soaps & detergents and personal products in the quarter."
In the June quarter, HUL had seen its lowest sales growth in three years at seven per cent; volume grew four per cent in the quarter. Unilever’s volume growth was only three per cent in that quarter.
