Bharat boosts volumes for FMCG firms as India slows

Profits at India’s three largest FMCG firms ? Hindustan Unilever (HUL), Godrej Consumer Products and Dabur India ? which have announced yearly results have grown in double digits in fiscal 2012, beating analysts’ expectations.

?Even in this inflationary environment, consumer demand has been quite resilient,? Nitin Paranjpe, chief executive of HUL ? India’s largest packaged consumer goods company by sales, which makes Surf detergents and Lux soaps ?said after announcing the company’s results last week. ?Consumers in India are upgrading faster than downtrading.? Consumers usually choose a cheaper product in a slowing economy with high inflation.

HUL’s fiscal fourth quarter net profit rose 20%, beating analysts? estimates, helped by a steady uptick in volumes, new launches and price hikes during the quarter. ?In fact, 60-65% of our business is touched by innovations in the last one year, either by re-launches or new launches,? Paranjpe added. HUL’s net profit rose to R686.6 crore compared with R569 crore a year earlier, on a standalone basis, as volumes grew 10%.

V Srinivasan, an FMCG analyst with domestic broker Angel Broking, said HUL posted an impressive top line growth of 15.7% year-on-year (y-o-y), driven by a healthy volume growth of 10%. ?Overall, the domestic FMCG business grew by 23.4% y-o-y, aided by 23.6% y-o-y growth in the home and personal care (HPC) business and 17.3% y-o-y growth in the foods business,? he added.

GCPL, makers of soaps, hair dyes and mosquito repellents, saw net profit grow over 41% in fiscal 2012 to Rs 726.72 crore compared to Rs 514.71 crore a year ago, led by new products and a rural thrust. ?Innovations, including in household goods and hair dyes also led our growth in FY 2012,? said Adi Godrej, GCPL chairman, optimistic about robust growth in the current fiscal (2012-13) too.

Consumer demand growth is a silver lining in an otherwise gloomy industrial landscape, which saw growth slow as the government dithered on reforms, inflation rose and the rupee weakened. In April, the International Monetary Fund lowered India?s growth projection to 6.9% for fiscal 2012, cautioning that governance concerns have weakened business sentiment in the country.

Consultants say the demand reflects changing trends in income, where new buyers are spending more as they begin to earn more. ?India is witnessing a shift, where many deprived consumers (earning less than Rs 1.5 lakh in annual income), are moving to the next billion (Rs 1.5 lakh to Rs 5 lakh) and starting to consume,? said Abheek Singhi, partner and director, The Boston Consulting Group.

?This is especially visible in rural India where there is continued growth in rural incomes (driven by the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS), higher minimum support prices or MSPs, and greater non-agricultural activities), increased physical reach and greater media penetration,? he said. MSP is the price paid to farmers if they choose to sell their foodgrains to the government.

MNREGS provides a legal guarantee of 100 days of employment in every financial year to adult members of any rural household, willing to do manual, public work for Rs 120 per day. Minimum wages have gone up 17-30% since January. The government has earmarked over Rs 40,000 crore on the scheme so far.

Agrees MG Parameswaran, executive director and CEO, Draftfcb + Ulka Advertising, which handles the advertising accounts of Amul and Wipro Consumer Care. ?A lot of consumer product demand is coming from rural areas who have had the benefit of better agricultural production coupled with the safety net of MNREGS in FY 2011-12,? he said. ?This has meant that rural consumers are having the extra cash to upgrade to branded products in various categories. So, getting consumers to consume more is a big growth driver.?

In the March quarter, the rural market grew faster than the urban market. According to market research firm the Nielsen Company, rural markets grew at 17.2% compared to 16.5% in urban markets, reversing the trend in the Dec quarter, where urban markets grew more than rural.

Dabur India, makers of health supplement Chyawanprash and Vatika skin care products, has said its non-food FMCG business in rural India has grown ahead of the urban markets. ?Dabur has, in the 2011-12 fiscal, invested significantly behind expanding its rural footprint, which has been one of key growth drivers during the year,? said Sunil Duggal, its chief executive. For the year ended March 31, 2012, Dabur had a net profit of Rs 644.89 crore compared to Rs 568.58 crore a year ago.

Like Dabur India, HUL has also expanded its rural network to reach out to a wider target audience. ?As we have trebled our rural distribution network, our rural growth has been significant in the fourth quarter of 2011-12. Consumption in rural markets has not slowed down,? said Paranjpe.

?It is a daily consumption sector ? so nothing can slow down its growth,? said Chaitanya Deshpande, head of M&As at Marico, which makes Parachute hair oil and Saffola edible oil. ?In fact, the FMCG sector is typically is one of the last industries to get impacted during the downturn and is impacted the lowest degree too.?

Marico had seen a 9% growth in its consolidated net profit for the fiscal, but the growth would have been higher if not for an exceptional gain the company had in the previous fiscal through sale of its Sweekar brand.

?Two years ago, our rural sales accounted for 25% of our total sales. Now it amounts for 30%,? Deshpande added.