News Analysis

FMCG sector saw robust volume growth in 2018

Parvatha Vardhini C BL Research Bureau | Updated on January 07, 2019 Published on January 07, 2019

Most frontline companies recorded double digit growth in both sales and net profits for the nine months ended September 2018

After hiccups in the form of demonetisation and transition to the GST regime, the year 2018 began on a positive note for all consumer-oriented sectors. Both urban and rural demand picked up, with rural volumes/sales growing faster than urban for most companies.

However, as the year progressed, demand for discretionary items such as new vehicles and durables faced rough weather, thanks to headwinds such as high interest rates, rise in fuel costs as well as tight liquidity among NBFCs which affected lending.

Low–ticket non-discretionary spending was resilient though. Lower prices due to reduction in the GST rate for hair oil, toothpastes and soaps, and the cut in GST rate to 18 per cent (from 28 per cent) for products such as detergents, face/body wash, cosmetics, hair-care products and deodorants in mid-November 2017 also boosted demand for FMCG items. Thus, most companies saw robust volume growth last year. Take Hindustan Unilever for instance. The company recorded 11-12 per cent volume growth (year-on-year) in the March, June and September 2018 quarters.

All segments of the company — be it home care, beauty & personal care or food & refreshments — contributed equally to this strong show. Britannia too recorded a volume growth of 12 per cent in each of these quarters.

Thanks to good demand, most frontline companies such as HUL, Nestle, Dabur, Marico and Britannia recorded double digit growth in both sales and net profits for the nine months ended September 2018.

While the rise in prices of crude-based inputs such as liquid paraffin and HDPE did hurt, cost control efforts and softer prices of other raw materials such as vegetable oil –based inputs, sugar and milk helped many companies expand their margins.

Glaxo SmithKline Consumer, Colgate Palmolive, Nestle and Hindustan Unilever were among the companies that witnessed margin expansion in each of the quarters until September 2018.

With the stock markets remaining jittery for most of 2018, good demand for consumer staples and the sector’s reputation as a defensive bet during iffy market conditions, saw FMCG stocks shoot up.

Upside may be limited

Stocks such as HUL, Britannia, Dabur , Godrej Consumer and Varun Beverages gained 20-35 per cent, while Marico and Jyothy Labs gained 13 and 17 per cent, respectively.

While earnings growth did catch up with stock prices, valuations expanded due to sharper rise in prices.

HUL now trades at 67 times its trailing earnings, compared with 62 times in the beginning of 2018. Valuation of Britannia (69 times now), Dabur (53 times) and Marico (54 times) too has expanded. As a result of the sharp rise in prices of consumer stocks, the year also witnessed HUL paying top dollar to acquire GSK Consumer.

Into 2019, while demand for consumer staples is expected to remain sanguine, high valuations may limit upside for FMCG stocks.

Published on January 07, 2019

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.