Mumbai: Indian mid-cap consumer goods firms are seen taking a hit on their profitability in the quarter ended 31 March as a continued upward momentum in prices of key inputs strains margins, even as steady volumes are expected to drive sales growth.
A Reuters poll of brokerages has forecast a 9% fall in quarterly profit for Colgate Palmolive, an 18% rise for Marico and a 22% rise for Glaxosmithkline Consumer.
“The bottom line growth in almost all the FMCG companies will lag behind their sales on account of margin contraction,” said an analyst with brokerage Sharekhan.
Price increases to mitigate margin pressures were also few and far between in the second half of FY11 leading to pressure on EBITDA margins during the fourth quarter.
“Consumer companies are finding it increasingly difficult to implement price increases due to worries about the impact of food inflation especially on the poor and continued interest to acquire market share,” said Manoj Menon, an analyst with Kotak Securities.
The only price raises affected were 32% on Parachute by Marico, 7% on Rin by Hindustan Unilever in south and west India and 4-5% in the soaps portfolio of Godrej Consumer and Hindustan Unilever.
India’s food price index in the year to 9 April rose 8.74% on higher prices of potatoes and fruits, while higher industrial fuel prices mirroring global crude prices pushed up fuel inflation to 13.05% in the same period.
However, volume growth is expected to remain steady on the back of continued government allocation towards rural development in the federal budget.
The Reuters poll expects Colgate to post a sales growth of 16% while Marico is expected to post a growth of 22%.
“The budget this time continued with its thrust on rural development and on increasing disposable income in the hands of people, by effecting reduction in indirect taxes and by expanding public expenditure on programmes such as NREGA and on rural infrastructure,” Angel Broking said in a note.
However, international operations of companies such as Dabur, Marico and Asian Paints will be hit marginally due to supply disruptions in the Middle East and North Africa and impact their revenue growth.
Godrej Consumer will, however, outperform the pack on account of the consolidation of its recent acquisitions. The poll expects the company to report a profit growth of 28% on a sales growth of 89%.