Consumer goods: slow growth remains a bugbear
Raw material costs continued to be in their favour, as both food and non-food commodity prices remained low
Since 1 April, the BSE FMCG Index’s gains have been just shy of the broader market’s. That should give some clue of how the June quarter has panned out for makers of FMCG—short for fast-moving consumer goods, or packaged consumer goods. While that’s nothing to write home about, nobody’s expecting anything dramatic to happen. Morgan Stanley has downgraded the sector, saying it will continue to tail the broader market, according to a 24 September report in The Economic Times.
In the June quarter, many firms reported urban demand continued to be weak and rural growth continued to slow. Hindustan Unilever Ltd’s domestic consumer business reported a volume growth of 4%, the same as in the March quarter. Pricing pressure continued to be visible in its soaps business, mainly responsible for pulling down value sales growth. Others did not fare too well either. Dabur India Ltd’s volume growth was 4% against 7% in the March quarter. If volume growth did not impress, pricing pressures meant sales in value terms, too, was under pressure.
However, raw material costs continued to be in their favour, as both food and non-food commodity prices remained low. Also, firms cut back on direct advertising, which led to a lower advertising to sales ratio. Instead, they passed on the cost savings in the form of price cuts or volume discounts, in a bid to drive sales growth and protect market share. Lower input costs and the cut in advertising costs meant most firms saw margins improve although the absolute level of profit growth itself was nothing to get excited about. ITC Ltd’s results were slightly different. Its volume growth improved, probably because the excise duty hikes in the FY17 budget were relatively moderate. Its consumer products business also did well, with sales rising by 9.5%.
There are some silver linings. Monsoon rains have been good, which is expected to have a lag effect on rural demand. Among the events that were eagerly awaited, the hike in central government pay has happened and the goods and services tax will be rolled out in FY18. These are all boosters. The only thing that’s missing from the mix is a revival in demand for consumer goods.
Editor's Picks »
- Saudi oil minister says Aramco IPO ‘most likely’ in 2019
- Sterlite protests: Supreme Court for urgent listing of matter on 28 May
- EU finance ministers strike deal on overhaul of banking capital rules
- Cadila Healthcare Q4 profit rises 53% at Rs590.8 crore
- GBSHSE Class 10 result 2018: Goa board declares marks, over 91% students pass
- Motherson Sumi continues to face margin pressure in foreign markets
- What the Warren Buffett indicator tells us about market valuations today
- Jet Airways lands with a thud in Q4 as fuel costs increase
- IBC amendments: Some dilutions, and a lot more speed
- Patanjali’s gambit is paying off in toothpaste wars