)
The financial performance of fast moving consumer goods (FMCG) companies for the quarter ended June is likely to be mixed. Inflationary pressure and weak consumer sentiment continue to dog most players. Revenue growth, say analysts, is likely to be 12-17 per cent, with volume growth varying from four to 11 per cent. Profit growth, on the other hand, is likely to be 15-20 per cent, they said.
The estimates are based on past financial performance and how the current quarter has been. If general economic sentiment is good, FMCG companies benefit. If not, performance is marred.
According to analysts, profit growth for the June quarter will be aided by aggressive cost management at most companies, as trimming of expenditure becomes inevitable when sales growth is not strong. Notably, areas such as advertising and sales promotions (ASP) could see lower spending, expected to be 11-12 per cent of net sales, according to analysts.
| LIKELY FMCG RESULTS |
|
A year before, ASP as a percentage of sales was 12-13 per cent for most companies. Colgate saw about 14 per cent, as competitive pressures compelled them to keep spending levels high. However, ASP has slid for most companies in the past few quarters as the pressure to maintain margins in an inflationary scenario has grown. In a recent conversation with Business Standard, Dabur's chief executive officer, Sunil Duggal, had said sub-optimal rains would further stoke inflationary pressures, hitting margins rather than revenue. Companies have already cut back on sales promotions in categories such as soaps, detergents and personal products, to prevent margin erosion. The trend has been no different in packaged foods, where sustained food inflation has compelled most companies to raise prices. In a recent analysts' meet, Nestle India's managing director, Etienne Benet, had said the company would rationalise its chocolate and beverage portfolios, trimming low-margin products and focusing on health and wellness.
It would also increase focus on noodles, with entry into new segments such as water and pet foods not expected to happen soon as the company looked to stabilise operations.Apart from this, companies are looking to trim distribution and other expenditure. The MD of Hindustan Unilever (HUL), Sanjiv Mehta, recently emphasised that their attention would shift from expanding distribution (and, thereby, costs) to improving sales throughput from existing stores. The endeavour, he said, was to ensure the existing stores delivered optimally, since the company had improved direct coverage of stores three and a half times in four years.
Dabur, Marico and Godrej Consumer are trying to insulating themselves from the slowdown by launching breakthrough products, pushing small packs of all core brands (which Marico executives describe as recruiter packs) and driving their presence in rural areas, where sales growth is still higher than in urban markets. In the fourth quarter of 2013-14, it was the home-grown companies led by Dabur, Marico and Godrej Consumer that reported a stable set of numbers, in contrast to multinationals such as HUL and Nestle, whose performance was weak. The trend in the June quarter is expected to be likewise.
