FMCG: Expect no strong repeat show as demand flags
Despite commodity inflation and fears of a drop in consumer demand, FMCG cos managed to log a strong performance for the quarter ended June 2011.
By Kiran Kabtta Somvanshi, ET Bureau | Updated:
FMCG companies, which had three months ago seen their stocks hitting record high levels, have over the past three weeks seen a sharp correction soon after most of them announced their June quarter results. Despite the healthy performance logged by most FMCG companies during the quarter, there are worry lines which indicate that the going may not quite good.
Despite commodity inflation and fears of a drop in consumer demand, FMCG companies managed to log a strong performance for the quarter ended June 2011 - characterised by a double-digit growth in net sales and operating profit. This performance is not based purely on volumes growth. Price increases taken by companies on select products boosted revenue growth.
With input costs rising and proving to be a challenge for consumer goods companies, most of them tried to cut costs in terms of their advertising expenditure and overhead costs. For instance, market leader HUL reduced its ad spend to 11.5% of net sales from 15.6% a year ago. The recent easing in prices of commodities augurs well for consumer goods companies facing the pressure of high input costs. In case, the bearish commodity price trend sustains, it will help these companies improve margins.
The prospects of strong demand not holding out is a concern most consumer companies have to reckon with. Price increases will have a negative impact on demand. In the June quarter results conference call with analysts, Dabur's management was of the view that demand from rural India was tapering off marginally. The Nielsen Global Online Consumer Confidence Survey that tracks consumer confidence has dipped for the June quarter. It is the first time since the December quarter of 2009 that the Index has dipped in India.
Companies have also to contend with a high base effect. The current momentum of a double-digit growth may not be easy as companies enter each new quarter. HUL has a high revenue base of 5,027 crore in the forthcoming December quarter. For companies like Godrej Consumer Products, Dabur and Marico, which have reported a robust growth in topline on account of their international acquisitions, the coming quarters may not be so rosy.
Despite commodity inflation and fears of a drop in consumer demand, FMCG companies managed to log a strong performance for the quarter ended June 2011 - characterised by a double-digit growth in net sales and operating profit. This performance is not based purely on volumes growth. Price increases taken by companies on select products boosted revenue growth.
With input costs rising and proving to be a challenge for consumer goods companies, most of them tried to cut costs in terms of their advertising expenditure and overhead costs. For instance, market leader HUL reduced its ad spend to 11.5% of net sales from 15.6% a year ago. The recent easing in prices of commodities augurs well for consumer goods companies facing the pressure of high input costs. In case, the bearish commodity price trend sustains, it will help these companies improve margins.
The prospects of strong demand not holding out is a concern most consumer companies have to reckon with. Price increases will have a negative impact on demand. In the June quarter results conference call with analysts, Dabur's management was of the view that demand from rural India was tapering off marginally. The Nielsen Global Online Consumer Confidence Survey that tracks consumer confidence has dipped for the June quarter. It is the first time since the December quarter of 2009 that the Index has dipped in India.
Companies have also to contend with a high base effect. The current momentum of a double-digit growth may not be easy as companies enter each new quarter. HUL has a high revenue base of 5,027 crore in the forthcoming December quarter. For companies like Godrej Consumer Products, Dabur and Marico, which have reported a robust growth in topline on account of their international acquisitions, the coming quarters may not be so rosy.
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