FMCG companies make merry

Updated: Apr 29 2006, 05:30am hrs
Fast moving consumer goods, or FMCG, companies are on a roll. For the latest three months to March 2006, which for some is an annual closing and others the first quarter of their current year, all had the same story to tell. Business is strong, growth is in double-digits and the sector is moving at a brisk pace. Check the numbers: Hindustan Levers net sales for its first quarter of 2006 are Rs 2,798.05 croreup 11.64 % over the base quarter. Net profit is Rs 442.86 crore in the current quarteran increase of nearly 77% over the same period last year. Nestle Indias net sales for the first quarter of 2006 was 10% more at Rs 675.9 crore. P&Gsfor what is its third quarterwas Rs 112.89 crore, a growth of 27% over the same quarter in 2005.

Maricos consolidated net sales for the fourth quarter of 2005-06, on the other hand, was Rs 298 croreup 19% over the corresponding period in 2004-05. Daburs and Godrej Consumer Products fourth quarter net sales, meanwhile, stood at Rs 479.93 crore (up 21.5%) and Rs 657.3 crore (a 17% growth) respectively. And Colgate Palmolive Indias figures were Rs 307.4 crorea growth of 21.7%.

Godrejs chief financial officer is modest. Well, weve nothing to complain about, Sunil Sapre says, tongue in cheek. The growth in the sector is on account of an increase in the income levels of consumers. They are spending more, which is giving us better numbers. Says an FMCG analyst based in Mumbai, What is driving this growth is not really a higher price realisation, but actually volume sales.

FMCG companies have been reaping the benefits of a healthy gross domestic product, currently growing at about 8%, which has resulted in better volumes for them over the last few months. The sector recovered from a two-year slump last September and things have only looked up since then. Says Rajan Varma, chief financial officer, Dabur India: If you ask me there is a greater flow of money, which is impacting the industry.

Maricos flagship Parachute Coconut Oil, for instance, registered an 11% increase in volume sales for the fourth quarter of the financial year 2005-06, while its edible oil Saffola moved up by 16%. Daburs sales, on the other hand, were driven by its Real Activ fruit juices, which grew by 46% over the last fiscal, home care grew by 63%, skin care by 34%, its Ayurvedic line by 38% and oral care by 32%.

Godrej, in contrast, had strong support from its toiletries and hair colour segments, which registered a growth of 61% and 22% over the fiscal 2004-05, while sales of Nestles food business grew by 13.9% and P&Gs sales of Whisper and Vicks were both up by 27% each.

Analysts describe HLL results as decent. Says Nikhil Vora, vice-president, SSKI Securities, It is line with expectations. We were expecting HLLs topline growth in the region of 13%. The company has done around 12%. We were expecting a profit after tax of about Rs 290 crore. The company has done Rs 293 crore. Theyve been on the dot, if you ask me.

What has driven HLLs growth this quarter is the household and personal care segment, which grew by 20%. The foods business also grew in double-digits recording an 11% growth this quarter. According to Vora, the personal care segment has been at the forefront of the companys growth trajectory this quarter, followed by beverages, stimulated by coffee rather tea sales. Soaps also did well on the back of Lux. The consumer sector has seen normative growth. And HLL is following that trend, he says.

Going forward, Vora predicts, FMCG companies will start increasing price of products in larger jumps, more than the small hikes last year. Last year, Godrej, for instance, increased the price of its powder hair dye satchet by a rupee to Rs 8. Dabur undertook price hikes of about 4-5% across categories, starting with its Amla Hair Oil in April last year, followed by Vatika and Lal Dant Manjan in May and Chawanprash and Lal Tel in July of last year.

Nestle and HLL too have revised their prices in the last few months. HLL, in particular, hiked the price of its toothpaste brandsPepsodent and Close-Upby 5% around May-June last year, which saw rival Colgate-Palmolive responding to the same by increasing the price of its products by a similar margin. Shampoos and detergents from HLL were also dearer to consumers. Marico, meanwhile, held on to its product price, especially that of Parachute, which retails at Rs 34 for its top-selling 200 ml bottle, despite a drop in dry coconut prices during the fourth quarter, says Milind Sarwate, chief financial officer of the company.

The quarters ahead are likely to continue buoyant for FMCG companies. One worry, however, could be the sequential growth (the latest quarter compared to the one preceding it) has been slowing down and actually negative for the likes of HLL, P&G, Godrej and Dabur. Analysts say this is a seasonality as the quarter to March is historically weak for the companies. Spiraling crude prices, rising input prices and a deficient monsoon could further weaken that trend in the coming months but for now it seems like good times for the sector.