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Nestle, Colgate shine in depressed market

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Jayanta Mallick

Kolkata, April 19

IN a depressive and volatile market condition, the FMCG stocks - Colgate-Palmolive and Nestle - smiled as investors took a bite at them.

According to Mr Ashish Kapoor, a sector analyst at Anagram Stockbroking, the environment seems conducive for growth of FMCG companies, as the sector appears to be emerging from three years of stagnant growth. "Changes in urban lifestyle, rising incomes and focus on value are pushing up growth," he observed. Indications of larger disposable income and a perceptible shift in consumption priority in the rural sector also appear to be favouring the FMCG marketers.

According to analysts, marketing focus and pricing strategies are also changing in sync with the emerging scenario across the urban and rural divide.

According to a director (marketing) of an FMCG major: "Wider range of price points and broader basket of products followed up by pinpointed marketing and advertising strategies seem to be finally paying off, increasing or gaining market share despite competition between the big and small local players".

"The omnibus strategies have been dumped, and experiments and trade offs between topline and bottomline growth for some players are showing results," he added.

Colgate-Palmolive has focused on increasing its presence in the lower-end of the price segment.

Mr Kapoor said: "This has led to volume growth by warding off competition, but with lower realisation. In the first nine months, Colgate's volume growth was 9 per cent compared to the industry average of 5 per cent. On the other hand, lower ad-spend has improved profitability. This has encouraged the company to make investment in a new unit in Himachal Pradesh".

For Nestle, the sales growth in the December 2004 quarter was 8 per cent.

Industry observers believe that going by the trend during the current fiscal, both the companies may post a sales growth of 26-28 per cent.

According to a section of market players, the impression that was sought to be given by Nestle at a recent analysts meet could be too conservative. Nestle had reportedly suggested that sectoral growth may not be sharp in the one-year time frame. Speculation over overseas parents increasing stake further from the current 62 per cent is also boosting the sentiment for the stock.

On the BSE, Colgate-Palmolive closed at Rs 196.85 (Rs 191.30, while Nestle ended at Rs 636.80 (Rs 616.95).

(This article was published in the Business Line print edition dated April 20, 2005)
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