Fast moving consumer goods companies have posted yet another quarter of double-digit topline growth. However, the difference in this April to June quarter compared to the corresponding one in the previous year is that the growth is driven by volumes as against value (or price hikes) in the last financial year.
The sector also benefited due to lower input costs, which saw the margins expanding. For instance, Godrej Consumer Products (GCPL) recorded one of the strongest margin expansions of 598 basis points (bps), to 19.7 per cent (13.7 per cent last year), followed by Colgate Palmolive which delivered margin expansions of 557 bp. The margin expansions for ITC, Hindustan Unilever (HUL) and Marico were 385 bp, 209 bp, and 116 bp, Y-o-Y, respectively.
As in the January to March quarter of 2009, the midcaps — Dabur, GCPL, Marico and Colgate Palmolive -- performed much better than the largecaps, ITC and HUL. The y-o-y volume growth for the first quarter this fiscal for Dabur was 16 percent, for GCPL and Marico, 14 per cent, for Colgate Palmolive, 12 per cent. On the other hand, the volume growth for largecaps was in single digits. For instance, y-o-y volume growth for the non-cigarette business of ITC was 6 per cent and for HUL, 2 per cent.
However, HUL's two per cent volume growth also shows a rebound, as in the January to March quarter it had recorded a 4 per cent dip in volumes. The rebound for HUL comes from its personal care portfolio, which recorded volume growth of 15 per cent, as the company took corrective action like reducing the price of Breeze and increasing the grammage of Clinic All Clear and relaunching it as Clear.
One reason for the high volume growth was the increase in advertising and promotion expenses due to events like the Indian Premier League (IPL) and T20 cricket tournaments, besides the sector's ongoing efforts to adjust prices at price-sensitive points and increase grammage, and a spate of new launches and product innovations.
For instance, Dabur India rolled out a host of new products which include a fruit beverage, Burrst, a fragrant light hair oil, Dabur Amla Flower Magic, and a new ayurvedic Dabur Total Protect Health Shampoo. Likewise, a new variant from the Godrej No.1 stable, namely Godrej No. 1 Lime and Aloe Vera for fresh, soft skin during the summer was launched. Godrej Nupur Mehendi was re-launched in a new and improved formulation. The Cinthol brand portfolio was also expanded with the launch of two new deodorant sprays ‘Rainstorm’ and ‘Unleash’.
The y-o-y increase in advertising spending for Dabur was 39 per cent, GCPL, 30 per cent, Marico, 27 per cent and HUL, 26 per cent. The only exception to this was Colgate, whose spending reduced by 455bp.
Despite the weak monsoons, analysts are optimistic that the sector will perform well this fiscal. Weakness in the monsoon, they feel, would not significantly impact rural spending due to the National Rural Employment Guarantee Scheme and others like it, and also with urban demand picking up in the second half of the year with improving market sentiments. "We see the top line at 12 to 15 per cent in the coming quarter as well," says Anand Shah, analyst with Angel Broking.
