The Hindu Business Line : FMCG buoyancy likely to persist

The current buoyancy in the FMCG sector is not likely to be short term, according to market players, while analysts are convinced that the next one to two years would look good in terms of earnings for the companies.

Business acquisitions, improved market conditions and focus on efficiencies helped some of the fast moving consumer goods (FMCG) companies to turn in good earnings numbers for March 2006 quarter as well as for the full year, analysts said.

The robust growth in the FMCG sector clearly reflects on the changing market dynamics that demand is on the higher side. This is evident in the fact that most FMCG companies have reported strong growth in sales. Barring packaged tea, sales have grown for most consumer products.

Rural demand picks up

Rural demand has also picked up substantially as farm incomes have moved up during the fiscal.

Research reports put out by broking houses indicate that FMCG companies would continue on their profitable path.

Hindustan Lever Ltd's (HLL) first quarter profit after tax was below the market's expectation. The company reported a 13.63 per cent increase in profit after tax before exceptional item at Rs 293.98 crore. Price hikes in some of its products and sustained cost efficiencies helped HLL to grow the gross margin.

HLL sustained its profit growth but expressed worries about input cost pressure. "There is clear indication that rural demand has gone up. With regard to HLL there is confidence of volume growth. There is also evidence that despite increase in input cost pressure, companies such as Marico and Dabur have been able to improve operating margins. This is largely due to better efficiencies and economies of scale," Mr. Jay Prakash Sinha, Head of Research, Kotak Securities said.

Shares of HLL have been range bound in the last one month and ended at Rs 279.30 down Rs 2.95 in Wednesday's trade.

Colgate Palmolive's full year net profit grew by 21 per cent to Rs 137 crore and net sales increased 17 per cent to Rs 1,124.2 crore. Cost management and improving efficiencies helped it turn in good earnings number.

Colgate's recent three launches have garnered market share of close to 10 per cent, analysts said.

Good growth demand

Reiterating that growth demand has been good across all categories, analysts maintain that companies have been able to pass on input cost pressure to consumers in the form of higher prices.

"However a company cannot take on too many price increases, thereby creating room for new players to come in," an analyst with a leading domestic brokerage said. Concern has also been expressed over how much of the volume growth will be translated into profits.

Marico Ltd's profit after tax for 2005/2006 grew by 23.85 per cent to Rs 86.88 crore and revenues increased by 13.76 per cent to Rs 1,147.48 crore. A senior official of the company said Marico has grown in every business it is in.

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