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Nirma’s consumer biz hit by competition

Nirma’s consumer biz hit by competition
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First Published: Tue, Jun 01 2010. 10 13 PM IST

Graphic: Yogesh Kumar/Mint
Graphic: Yogesh Kumar/Mint
Updated: Tue, Jun 01 2010. 10 13 PM IST
Soap and detergent maker Nirma Ltd’s March quarter results reflect collateral damage from the tussle between two consumer multinationals, Hindustan Unilever Ltd (HUL) and Procter and Gamble Home Products Ltd (P&G).
In the March quarter, Nirma’s sales of soaps and wetting agents fell by around 11% to Rs650 crore and were down by around 1% for the full year. P&G’s decision to grow share in the mass detergents market has sparked off a fierce battle. Though Nirma has diversified its product range to include premium products, the mass market is still an important segment for the company.
Graphic: Yogesh Kumar/Mint
Competition has risen in the soap market. HUL has relaunched its entire soap portfolio and lowered prices of some brands. Both multinationals have stepped up advertising.
Nirma’s other expenditure, excluding power and fuel, has risen by 14% during fiscal 2010, though they remained flat in the March quarter.
Despite lower sales in the March quarter, Nirma’s total material costs fell by 9%. The firm makes some of its key intermediates required for its soaps and detergents business. After captive consumption, the surplus is sold in the market. Soda ash and linear alkyl benzene are two such products that contributed around one-fifth of sales in fiscal 2009.
Nirma’s diversification into the pharmaceuticals sector made profits in the March quarter. On revenue of Rs64 crore, it earned a segment profit of Rs9.5 crore, compared with a loss of Rs25 crore a year ago and a similar loss in the December quarter.
The company had also acquired a soda-ash business in the US, which could have balanced slower growth in the domestic market. But its sales declined by 2% during the year to Rs1,509 crore. Global soda ash companies have been suffering from excess supply, which put pressure on product prices during 2010.
The firm’s cash flows during the year were sound, which it used to lower debt by 20%. Its debt-to-equity ratio fell to 0.5 in fiscal 2010, from 0.7 in the previous year.
Nirma’s sales will continue to be affected by higher competition. A recent development is the proposed demerger of a group company’s cement and mining project to Nirma. That will not only result in equity dilution, but also increase the commodity element in its revenues and could also put pressure on its funds position. Nirma’s share price has fallen by 9% in a month, while the FMCG (fast-moving consumer goods) index on the Bombay Stock Exchange has gained 3%.
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First Published: Tue, Jun 01 2010. 10 13 PM IST