Volume growth continues in FMCG

March quarter saw robust sales growth but concern remains on margins, with price outlook uncertain

Fast moving consumer goods (FMCG) companies appeared to have sustained their sales momentum in the quarter ended March 31, at a time when inflationary pressures were high.

Companies that have declared their results till date for the quarter report double-digit top-line growth, from 13 per cent (Nestle) to 39 per cent (Procter & Gamble Hygiene and Healthcare). Barring Nestle and Marico, most other companies have seen bottom line growth between 15 and 35 per cent during the quarter, data compiled by the Business Standard Research Bureau shows.

While the numbers are in line with market estimates, analysts were cautious owing to the general trend of consumers cutting back during inflationary times. Abneesh Roy, associate director, research, Edelweiss, says, "Categories such as soups, high-end edible oils and noodles are showing signs of a slowdown. These are discretionary items which consumers tend to cut on when pressure on their wallets grows."

While headline inflation has been just below seven per cent, consumer price inflation, which measures product prices to the end-consumer, has been in the region of 7.5 per cent. Despite this, companies on an average saw volume growth in the region of nine to 15 per cent and price-led growth in the region of five to 10 per cent during the quarter. Some categories such as soaps & detergents, however, bucked the trend of volumes, seeing growth largely led by price.

“I remain optimistic about the FMCG sector. Consumer sentiment has been good and demand will continue to be robust,” says Adi Godrej, chairman, Godrej Group.

Dabur chief executive Sunil Duggal says, “There was anticipation of a slowdown, but overall revenue growth has been good.”

For the January-March period, the Rs 75,000-crore Indian FMCG industry saw 14 per cent growth, higher than the 10 per cent growth in the third quarter . R Sridhar, chief financial officer, Hindustan Unilever, says, "This is definitely good news. But one has to be watchful on how the situation evolves in the coming quarters."

With the government dropping hints of a fuel price rise, say analysts, both headline and consumer price inflation are likely to shoot up in the coming quarters, putting pressure on companies to increase prices. Already, companies have seen pressure on their margins, owing to higher ad spends and lower price rises. Most companies, on an average, saw advertising spending in the region of 13-14 per cent, higher than the 10-11 per cent in the third quarter. “As competitive intensity grows, you have to keep ad spends at a consistent level,” says Vineet Agrawal, president, Wipro Consumer Care & Lighting. Companies are expected to keep ad spends a little lower during the coming quarters.