BackConsumer: sales growth wears thin
The one bright spot is lower input costs, which have given companies room to stoke consumer demand
Premium
he BSE FMCG Index is down sharply in the past six months and flattish, compared with three months ago. (FMCG is short for fast-moving consumer goods, or packaged consumer products). Consumption demand remains weak, with urban growth playing truant and the decline in rural growth continues.
If sales growth of packaged consumer goods companies was low in the March quarter, then the June quarter was worse. Sales grew by just 0.8% over a year ago, compared with the previous quarter’s 6.2% growth. But if we exclude Nestle India Ltd’s sales, which were affected by the withdrawal of Maggi noodles in June, then growth is better at 2.7%, but only just.
What caused this slow growth? Two companies with higher sectoral weights are ITC Ltd and Hindustan Unilever Ltd. ITC’s sales growth declined 7.3%, partly due to lower cigarette sales but more due to a decline in agricultural commodity exports. If ITC underperformed, then Hindustan Unilever’s volume growth was okay at 6%, but some of these gains were due to price cuts. That ate into sales growth, which came in at a relatively low 5.4%.
Mid-sized firms Marico Ltd, Dabur India Ltd and Godrej Consumer Products Ltd did better, with low double-digit sales growth. The market leader in oral care, Colgate Palmolive (India) Ltd, too, was under pressure, with sales growing by only 5.5%.
The bright spot was that raw material costs have declined due to lower prices of crude oil, chemicals and agricultural commodities. The sector’s input costs declined by 6.4%, which resulted in a 3.5 percentage points increase in gross margin. But companies used up this windfall to pay for higher salaries and other expenses and a big share also went towards higher advertising and promotion spends and price cuts.
Though operating profit for the sector declined by 0.2%, after excluding Nestle’s figure it has increased by a more respectable 10.5% while net profit rose by 6.8%.
There are early signs of a recovery in urban demand. But it may not be substantial as yet and enough to offset lower rural growth. Poor rainfall may affect farm incomes and dent rural growth further. The one bright spot is lower input costs, which have given companies room to stoke consumer demand.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
