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A good quarter for consumer goods firms

A good quarter for consumer goods firms
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First Published: Thu, Jan 14 2010. 10 21 PM IST
Updated: Thu, Jan 14 2010. 10 21 PM IST
New Delhi: Consumer goods firms are likely to post strong volumes growth and modest expansion in value on increased demand and discounts in the three months ended 31 December, despite a sharp rise in input costs.
A Mint survey of five brokerages for nine consumer goods companies shows that they are likely to grow between 4% and 16% in volume but could see squeezed margins as raw material prices climbed significantly.
The firms are likely to see sales growth in the range of 6.7-54.2%, but show profit growth of between a negligible 0.4% to a healthy 99.4%, according to the stock broking houses. Analysts, however, expect Britannia Industries Ltd profits to dip by at least 10%.
“The growth momentum in the FMCG (fast-moving consumer goods) sector will remain intact in quarter three of 2010, aided by strong demand across categories and propelled by rising demand from the bottom of the pyramid,” an India Infoline Ltd report said. “The growth is expected to be primarily volume-led, but in the absence of any major price hikes, the value growth is likely to be lower.”
The firms also spent more on promotional campaigns in the December quarter, the brokerages said. “In a bid to garner higher market share and sustained growth, FMCG companies are wooing customers with attractive discounts and innovative packaging,” according to an Angel Broking Ltd report. “We expect most FMCG companies to continue reinvesting margin gains into higher advertising spends in the ensuing quarters to support volume growth.”
The companies will start announcing quarterly results from next week, with ITC Ltd scheduled to post its results on 22 January.
Prices of raw materials in the December quarter have risen by an average of 30-40%. Prices of most farm products such as palm oil, sugar, milk and tea have spiked sharply and are expected to remain firm.
“We believe this will be the last quarter of significant gross margin expansion owing to a low base effect,” said Anand Shah, an analyst at Angel Broking.
Pointing to a similar trend, a report by Motilal Oswal Securities Ltd said that though these firms have not changed pricing during the quarter, the waning impact of carry-over pricing could result in lower margin expansion in the third quarter of the current fiscal year to 31 March, compared with the three months to September.
Although consumers are expected to cut down spending due to rising food prices and switch to cheaper brands, companies are expected to focus on expanding their product portfolio and reach.
“FMCG majors are increasingly focusing on expanding their global footprint by acquiring companies in niche segments to fill gaps in their product portfolio,” the report by Angel Broking pointed out.
During the quarter, Wipro Ltd acquired Yardley businesses in Asia, Australia and Africa from the UK-based Lornamead Group for $45 million (Rs204.7 crore now). After buying a 49% stake in Godrej Sara Lee Ltd, Godrej Consumer Products Ltd (GCPL) is looking to acquire the remaining 51% stake from New York-listed Sara Lee Corp.
Nestle India Ltd acquired the health and nutrition business of Speciality Foods India Pvt. Ltd.
“GCPL’s numbers look strong on account of consolidation of 49% stake in Godrej Sara Lee. The company’s core business has been steady and good growth is likely in soaps and hair colour,” a Nomura India report said.
Biscuit maker Britannia’s net profit is expected to fall during the quarter due to interest burden on its bond issue. For Colgate-Palmolive (India) Ltd, volume growth may be close to 16% as its Cibaca toothpaste brand is reporting strong growth in rural India, according to Motilal Oswal.
“For Marico Ltd, growth is likely to remain muted as most key businesses in India remain under pressure. Margins should largely remain flat on account of Kaya Skin Clinic losses,” Nomura said.
Brokerages said that Dabur India Ltd will benefit from the acquisition of women’s beauty care product maker Fem Care Pharma Ltd and robust demand in segments such as haircare, packaged juices and toothpaste.
For GlaxoSmithKline Consumer Healthcare Ltd, Motilal Oswal expects volume growth of 10%, led by the rising penetration of its Horlicks hot beverage brand.
For market leader Hindustan Unilever Ltd, gross margins are likely to expand to 50%, led by lower input costs and higher sales of skin care products due to the early onset of winter. “Volumes are expected to increase by 4% due to grammage increase in detergents and toilet soaps, price reduction, increased trade margins in some products,” Motilal Oswal said.
For Nestle, milk, baby food and packaged spices are expected to drive volume growth and the winter would see an increase in local coffee sales.
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First Published: Thu, Jan 14 2010. 10 21 PM IST