Falling input costs, earlier price hikes help drive growth

Defying the overall gloom, fast moving consumer goods companies delivered strong growth in both profits and sales in the latest September quarter. Even as earlier price increases propped up sales numbers, falling input costs expanded margins, putting more money in the hands of companies. And they used this bonanza to step up spending on advertisements.

Sales for 13 listed FMCG players grew 17 per cent for the September 2012 quarter over the year-ago period. Operating profits surged 30 per cent. Both figures sustained the pace clocked in the June 2012 quarter, when sales and operating profits grew 17.5 and 28 per cent respectively. Lower ‘other income’ in the September quarter, though, led to a tamer net profit growth of 18 per cent.

Margins up

Plunging prices of inputs such as palm oil, copra and crude oil helped boost profitability. As a proportion of sales, raw material expenses accounted for 50 per cent in the September 2012 quarter, where it had been 53 per cent in the same period last year.

These savings were promptly channelled into advertising and promotions, as competition picked up. Companies paid out 12.6 per cent of their sales towards adspend this quarter compared to 11.8 per cent a year ago. Marico, Gillette India and Britannia increased their ad budgets the most.

Volumes down

The only dark spot in the quarter’s numbers was on volume growth losing steam. The June 2012 quarter saw FMCG products flying off the shelves, offering strong support to sales growth. In the September 2012 quarter, though, volume growth was lower.

Volume growth of FMCG giant Hindustan Unilever, for example, was at 7 per cent in the September quarter compared with 9 per cent in the preceding quarter.

The company had a harder time selling personal care products even as soaps and detergents managed quite well.

Similarly, domestic volume growth for Dabur India, which sells hair oil, toothpastes and foods, slowed to 9 per cent from the 12 per cent in the previous two quarters. Health drinks for GSK Consumer Healthcare, too, saw slightly lower volume expansion of 6 per cent against the 7 per cent in the earlier quarters.

Companies such as Marico and Emami, however, held on to their volumes of 14-15 per cent, helped by hair oils. Both continued to ride on the shift to branded oils and small-size packs from loose oils.

Food companies Nestle India and Britannia saw another quarter of declining sales growth and behemoth Hindustan Unilever too indicated a slowdown in discretionary spending. If such dips sustain, it could finally spell slowdown blues for consumer companies too.


(This article was published on November 13, 2012)
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