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| Notwithstanding the dark clouds that loom large over the FMCG segment, some stocks still merit a look as defensive bets
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| During classroom sessions on equity research at the management institutes where I lecture, I never tire of telling my students that equity research involves more than simple number-crunching.
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| Our research team was early on the draw to signal the decline of HLL as a market-force at the bourses when it was still maintaining steady numbers.
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| Well, there is no rocket-science involved here. My boys and girls just walked into super-market stores randomly and scrutinised the manufacture dates of FMCG products which suggested that the shelf-life of HLL's products was on the upswing.
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| Not too long before this, HLL's products on the shelf had manufacture dates that went back barely a few days.
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| This is just to cite one instance of how we were able to foresee the impending decline of HLL as a market-force. There were several other such parameters which were subsequently validated by the company's declining numbers.
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| Memories tend to be short at the bourses. During most of the last decade, the FMCG industry was at the forefront, both on the economic front as well as at the bourses.
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| However, since the turn of the decade, the FMCG sector has been at the wrong end of the growth curve. Of course, the advent of a good monsoon this year has brought some belated cheer. But it is too early for captains of the industry to uncork the bubbly.
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| Food companies in the FMCG segment comprising players like Britannia, Cadbury, Glaxo SmithKline Consumer, Nestle and Tata Tea recorded a bottomline growth of only 6 per cent in the first half of the last financial year while the topline growth was a minuscule 0.5 per cent.
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| Marginally better off were consumer companies from the segment like Dabur, Colgate, P&G, Gillette and Marico, though they, too, recorded a dip in their topline during the period. Nevertheless, they recorded bottomline growth.
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| It must be noted though that companies in the sector are heavily dependent on rural markets, and the poor monsoons in 2002 only aggravated the situation.
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| However, these companies did see a recovery by the end of December 2002. Though there was a dip of 6 per cent in the topline, the bottomline recorded an increase of 13 per cent due to increased operational efficiencies.
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| While operational efficiencies through cost-cutting and the like are commendable, they are unsustainable on an incremental basis.
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| Amidst the cheer of a good monsoon in 2003, an area of concern for the FMCG segment is that prices of some raw materials, which were at all-time lows, have started spiralling.
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| Going forward, it may not be easy for companies to enhance operating margins. With topline growth still nowhere in sight, this could aggravate matters.
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The prime reason for the poor performance of FMCG companies in recent times has been the relative reduction in consumers
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