Profit on the cards for firms during September quarter4 min read . Updated: 08 Oct 2009, 10:19 PM IST
Profit on the cards for firms during September quarter
Profit on the cards for firms during September quarter
New Delhi: Makers of personal and home care products are expected to report modest increases in sales and improved profitability for the three months ended September as they focused on driving volumes.
A Mint survey of reports by eight brokerages shows that the bigger of these firms are likely to see net sales increase by 7.5% to 27.5% and net profit grow by 4.2% to 85.7% during the quarter.
The companies were concerned about this year’s poor monsoon though its impact is likely to be felt in the current quarter.
“Most of the managements we interacted with acknowledged deficient monsoon as a concern for rural consumption and hence, revenue growth. Nonetheless, impact of the same is not visible as yet," said a report by Prabhudas Lilladhar Pvt. Ltd.
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According to Tata Securities Ltd, it would be important to watch the impact of poor monsoons on Dabur India.
However, a Dabur India official said on condition of anonymity, “We have so far not seen any negative impact on rural demand."
The survey also showed that the companies continued to invest in existing brands and product launches despite an increase in costs of farm inputs.
Analysts believe that in the coming months, better reach through significant investments in supply chains would be a key driver in aiding volumes growth in companies that include Hindustan Unilever Ltd (HUL), ITC Ltd, Britannia Industries Ltd, Nestle India Ltd, Colgate-Palmolive India Ltd, Dabur India Ltd, Marico Industries Ltd, Godrej Consumer Products Ltd (GCPL) and GlaxoSmithKline Consumer Healthcare India Ltd.
“The volume growth has been good. There has not been decline or fall in demand for Godrej Products. It is business as usual," said H.K. Press, vice-chairman, GCPL.
Higher rural incomes due to rising food prices and higher minimum support prices for farm produce is also likely to result in gains for these companies, the analysts said.
Prices of palm oil dipped by 23% year-on-year in the quarter ended September over the same period a year ago, with a 50% y-o-y decline in crude oil prices in the same period, helping companies control costs of products in which they are key raw materials.
“Input prices (are) expected to remain subdued. Soap manufacturers will get continued benefit on gross margins, with palm oil prices continuing to drop during the quarter," Antique Stock Broking Ltd said in a report. “Further, detergent manufacturers are also expected to witness respite on gross margins with softening of LAB (linear alkyl benzene, a key ingredient) prices, which has dropped by 24% during April-September 2009."
According to India Infoline Ltd, GCPL and Colgate are likely to see the highest margin expansion. However, margins at Britannia are likely to remain flat due to a sharp rise in sugar prices, the brokerage said. The government’s decision to set a stock limit of 15 days had forced Britannia to import sugar.
“It would be very tough to run a business spread over several locations on 15 days’ stock," Britannia chairman Nusli N. Wadia told shareholders on 31 August.
The sector as a whole continues to witness healthy growth momentum with mid-sized companies expected to see double-digit volume growth, said a report by IDFC-SSKI Securities Ltd.
To drive sales, most companies offered bigger packs without raising prices and promoted lower-priced smaller packs.
Prabhudas Lilladher expects HUL to report 4-5% volume growth for the September quarter as it reduced prices of its Wheel detergent and Pepsodent tooth paste and increased packet sizes of Lux soap and Wheel.
Marico, however, is likely to post steady 7% and 10-12% volume growths in Parachute hair oil and Saffola cooking oil, respectively, it said.
“In order to drive volumes and retain consumers, most industry players took required actions such as the right product mix and pricing. Even Marico did the same as margins can be secured later but it is more important to retain consumer franchise," Saugata Gupta, chief executive of consumer products business at Marico, said.
IDFC-SSKI expects HUL to continue to see pressure on volume growth, particularly in lower-priced soaps and detergents. ITC is expected to witness improvement in its growth rate at 10%, with the cigarettes business expected to report volume growth of 5%, it said.
However, business growth for ITC in the sector would remain subdued at sub-15% and its hotels business would continue to see a decline, according to IDFC-SSKI.
Advertising spending rose for consumer goods companies, with HUL intensifying marketing initiatives in its home and personal care categories in the last two quarters. The company focused on soaps and creams—a segment in which it has been losing market share.
“Most FMCG (fast-moving consumer goods) companies have increased their advertising spends (except Colgate) in recent times, and we expect this trend to continue," said a report by Angel Broking Ltd.
HUL led the pack in product launches during the quarter. ITC also introduced several products. Dabur launched its premium skincare brand called Uveda. These launches led to higher spending on marketing and advertising during the three months to September. The brokerages said firms will continue to focus on driving volumes and investing in brands in the coming quarters.
Graphics by Ahmed Raza Khan / Mint