FMCG: Moving fairly fast

The BSE FMCG index has been a bit of an underperformer over the past six months, though over the last three months it has done better than the market. On Tuesday, the index gained 3 per cent. The Street has been anxious that a less than normal monsoon would result in a fall in rural incomes. With most companies earning at least a third of their revenues from the hinterland, the the top line will surely get hurt.

However, it appears that things might turn out better than expected. As ICICI Securities has pointed out in a report, AC Nielsen’s FMCG retail sales audit figures for July-August indicate a year-on-year sales growth of 14.2 per cent. This is, without doubt, a shade lower than the 16.3 per cent posted in the June 2009 quarter. But, as the ICICI report points out, this may be due to a lower inflation and a high base. The good news is that all the top ten categories saw higher volumes and five of them posted a better growth than that in 2008-09. The numbers would suggest that consumers aren’t cutting expenditure on these items just yet.

Among the better performers were Tata Tea and Godrej Consumer. However, the report notes that Hindustan Unilever saw lower volumes in categories such as toilet soaps and washing power. The other muted performance came from Britannia which saw lower volumes.

Given the data, analysts expect revenues of FMCG companies to grow by an average of 10 per cent year-on-year in the September 2009 quarter. Thanks to the benefit of lower raw material prices and cost efficiencies, operating profit margins are expected to expand, pushing up the operating profit by around 17 per cent. That should result in a similar growth at the net profit level.