New Delhi: Despite a slowdown, companies in India making household and personal care products are likely to report healthy growth in the three months to March, aided mainly by duty cuts and price hikes, analysts said.
A Mint survey of five brokerages revealed that they expect these firms to post robust revenue and profit growth also because falling commodity prices, particularly crude oil, expanded margins and new product launches, increased advertising expenditure and promotional campaigns bolstered volumes.
Consumer product companies, which include Hindustan Unilever Ltd (HUL), ITC Ltd, Britannia Industries Ltd, Colgate-Palmolive (India) Ltd, Nestle India Ltd, Dabur India Ltd, Marico Industries Ltd and Godrej Consumer Products Ltd (GCPL), are likely to see growth in sales by 5.9-23.7%, and show profit growth of between 8.3% and 37.2%, data collated from the five brokerages indicate. This excludes Britannia, which they expect would report an 8.7% fall in profits.
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The five brokerages surveyed were India Infoline Ltd, DSP Merrill Lynch Ltd, Motilal Oswal Securities Ltd, Angel Broking Ltd and SBI Cap Securities Ltd.
In the March quarter, the government reduced factory gate duties by 8% to 14% for most consumer products. A report by Motilal Oswal said this meant up to about 4% reduction in retail prices. “Though most FMCG (fast moving consumer goods) companies have facilities in zero-excise zones, we estimate the benefit at 1-1.25% on the entire portfolio,” it said.
The final impact of the duty cut on prices would depend on the ratio of manufacturing in excise-free to excise-paying zones. While cigarettes (ITC), biscuits (Britannia, ITC) or ready-to-eat foods (HUL, Nestle, Britannia, ITC) will not avail any benefits as these products are either subject to specific duties or exempt from excise, firms such as GCPL, Marico and Dabur, with factories located in tax-free zones, will also not see significant excise duty savings. “Companies such as HUL, GSK (GlaxoSmithKline) Consumer, Colgate-Palmolive India and Nestle India have the highest excise duty outgo and stand to be key beneficiaries,” according to Angel Broking.
Falling raw material prices have benefited firms that make detergents, soaps, shampoos, toothpaste and skin care products. “GCPL and HUL stand to benefit the most due to high contribution of soaps (and) detergents to their revenue,” Angel Broking said.
Although some companies reduced ticket prices or increased quantities in the same products in the three months starting January, most of them had hiked retail prices in the preceding two quarters by 5% to 20%, which would reflect in their earning in the quarter gone by. This is likely to reflect in increased earnings.