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Macro-economic issues such as demonetisation and GST implementation turned out to be temporary hiccups for FMCG companies in 2017. Most players were quick to bounce back from the impact of both these moves.
For instance, headwinds from the note ban saw Hindustan Unilever (HUL) post zero per cent sales growth in the quarter ended December 2016. But the company shrugged off the impact with aplomb in the March 2017 quarter, reporting a domestic consumer sales growth of 8 per cent. This growth was supported almost equally by volumes as well as realisations.
Again, in the June 2017 quarter, poor volumes due to de-stocking by dealers ahead of the GST and rise in input prices proved to be key pressure points. Big FMCG companies such as HUL, Dabur and Marico were also hurt by CSD canteens halting their procurement in the period before the GST launch. For instance, apart from drop in volumes, Marico saw average market prices of copra (input for Parachute oil) move up by 69 per cent during the quarter-ended June 2017 over the June 2016 quarter. Thus, its profit for the quarter fell 15 per cent over the year-ago period.
However, a rebound was seen in the three months ended September 2017 among many players. Godrej Consumer Products, for instance, reported domestic volume growth (year-on-year) of 10 per cent in this quarter, after recording just 0.1 per cent growth in April-June 2017. For the same period, Dabur’s domestic volumes moved up by 7.2 per cent as against a slippage of 4.4 per cent in the June quarter.
Overall, for the six months ended September 2017, standalone net sales of about 50 companies in the personal care, soaps / detergents and food / dairy space moved up by 8.1 per cent and standalone adjusted net profits recorded 13.1 per cent growth (over April-September 2016).
Urban consumption
Strong urban consumption tilted towards preference for premium and ‘natural’ products as well as a pick-up in rural demand from increased budget spends for rural India and good monsoon, drove sales for FMCG players in 2017.
Thanks to tailwinds, stocks such as Britannia and HUL gained over 60 per cent this year. Others such as Marico, Dabur, Bajaj Corp and Godrej Consumer have gained between 20 and 30 per cent. At the same time, valuations too have expanded sharply.
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