Mumbai: The mid-cap consumer goods firms are expected to see volume growth driving sales in the first quarter of FY11, but margins may be squeezed as stiff competition erodes pricing power and higher input costs hurt.
A Reuters poll of brokerages expects Marico to report a sales growth of 10%, Britannia Industries by 14%, Colgate Palmolive by 17%.
“We expect top-line growth to be moderate and largely volume-driven. However, that will be limited by the impact of the excise rollback and low consumer spending due to high food inflation,” said Gautam Duggad, an analyst with Prabhudas Lilladher.
The government in the 2010 federal budget hiked excise duty for the fast-moving consumer goods (FMCG) sector from 8% to 10%.
Food price index rose 12.63% in the year to 26 June, slower than the previous week’s rise of 12.92%.
The profit growth at these firms is also likely to be slower due to higher raw material costs, increasing ad spends and as most companies desisted from price increases to retain market share.
“Realisations in all the categories of FMCG are going to be flattish or lower on a year-on-year basis because there were very few price increases in this quarter,” said Ashish Upganlawar, an analyst with Sharekhan.
In fact, analysts said, some categories like detergents, soaps and shampoos have seen price cuts.
Input costs showed a mixed trend with crude derivatives falling by 3-5% while agri-commodities such as barley, copra, tea rose 4-17%, Anand Shah, an analyst with Angel Broking, said in a note.
Britannia is expected to see a 3% fall in net profit, Colgate’s net profit is seen rising by 10%, and that of GlaxoSmithKline Consumer by 20%.
However, Marico, which did not see any significant rise in raw material costs, is expected to see net profit growing 26%, according to the poll.
Analysts expect raw material costs to soften from the second quarter onwards, with a revival of monsoon rains in India.
Rainfall was 16% below average in June, but the shortfall narrowed to 10% last week.
Godrej stands out
Bucking the general trend in the sector, personal care products maker Godrej Consumer Products Ltd is expected to post strong earnings.
“We expect consolidated net sales to rise 73% year-on-year as sales numbers include benefits from recent acquisitions,” Motilal Oswal said in a note.
Godrej has announced 5 acquisitions across personal care, household care and haircare since March in a bid to expand in Asia, Africa and Latin America, and all these deals were expected to be earnings accretive in FY11.
According to the Reuters poll, Godrej is expected to see a nearly 40% rise in quarterly profit while sales are seen rising 61%.
However, the standalone numbers of the firm don’t match up to its consolidated performance, analysts said.
“Standalone numbers we are not expecting very good growth because soaps and haircolour did not too well last quarter and will not do too well this quarter as well,” said Sharekhan’s Upganlawar.
“7-8% topline growth and margins will be higher by 20% because they are covered for palm oil and other raw materials,” he added.