FMCG companies shut plants as political turmoil escalates

Fast-moving consumer goods companies are bracing up for an extended period of uncertainty as the crisis in Egypt, one of the most important North African markets, deepens.

The country has plunged into a political chaos since its first democratically elected president, Mohamed Morsi, was removed from power in early July by the army. From then on, the military-backed government and pro-Morsi supporters have been clashing with each other, with the situation showing no signs of easing.

For companies such as Dabur, Marico and Asian Paints firms that have manufacturing bases there this means shutting down their plants for now. Harsh Mariwala, chairman and managing director, Marico, admitted business had suffered in the last 15 to 20 days since the shutdown of operations. Analysts estimate the revenue loss for these firms in the last one month would be around Rs 1.5 crore. If the situation does not improve, then losses could mount, they say.

Sunil Duggal, chief executive officer, Dabur, said he was tracking developments closely in Egypt. "In the last two-and-a-half years, there have been occasions when operations were curtailed in view of the law and order situation. But this one is particularly bad. We are hoping the situation improves."

Dabur derives about four per cent of its total revenue from the North African region, three per cent of which comes from Egypt alone. Marico and Asian Paints also derive about two to three per cent of their consolidated revenues from Egypt, said Abneesh Roy, associate director, research at Mumbai-based brokerage Edelweiss.

Till about three years ago, Egypt was a market that most consumer-driven companies aspired to be in, thanks to its strategic location. A base there, according to Prashant Goenka, director, Emami Group, ensures access to both North Africa and West Asia, not to mention a growing consuming class within Egypt itself, which means a captive market for those who step into the country.

Keeping these factors in mind, Emami, Goenka said, had acquired a manufacturing plant for Rs 25 crore in Egypt in 2010. "But we haven't been able to start operations there because of the political chaos. Within a few months of us acquiring the plant, there were protests against the Hosni Mubarak government, resulting in its downfall. We have opted to go slow in that market for now in view of the political environment."

Most companies have been looking at alternative locations where they can service the crucial West Asia-North Africa belt that gives them about seven to eight per cent of their total revenue. Roy of Edelweiss says firms have been increasing their thrust of operations from destinations such as Abu Dhabi, Dubai and Sharjah to mitigate the losses on account of the chaos in Egypt.