Rise in raw material costs, credit crunch and the global slowdown have not affected FMCG companies in India. Results for the quarter ended September 2008 show that combined net profit of 12 Bombay Stock Exchange (BSE) FMCG index companies has increased by 14% as compared to the same quarter last year.
This is impressive, considering that the net profit compared to July-September 2006 period and July-September 2007 period for the same companies increased by only 0.5%. In fact, net profit of 350 BSE-500 companies increased 7% in the July-September 2008 quarter, as compared to the same period last year.
The robust net profit was boosted by a 21% increase in net sales of these 12 companies, despite the fact that raw material cost increased by 29% as compared to the same period last year. Raw material cost on a YoY comparison between the same quarter in 2006 and 2007 increased only 21% and net sales went up by 16%. This means that the companies were able to offset the input cost hike by passing it on to the consumers as retail prices of goods in this segment increased on an average by 10-20% in the last six months.
Leading the growth pack is Hindustan Unilever Ltd, which saw an impressive 34% increase in net profit for the quarter ended September 2008. The company?s net sales increased by 20% YoY, which is 50% more than the same quarter sales as compared between 2006 and 2007.
Net sales of Britannia Industries increased 28% and the net profit increased by 10% in the July-September 2008 quarter as compared the same period last year. Tea Tea Ltd and Merico Ltd both reported 18.7% increase in net profit.
?The sector is showing strong volume growth across product categories with improving pricing power for leading payers. Companies with low competitive pressures that brought product portfolios will be able to better withstand any slowdown,? says Motilal Oswal Securities research note.
For Indian FMCG companies, rural consumers continue to be an important base as sales of products across all categories like shampoos, toothpastes and hair oils have grown faster than consumption in urban markets this year. This can be attributed to higher prices of farm produce, farm loan waiver and as rural capita income rises, consumers would upgrade to higher end products driving volume sales of FMCG companies.
Moreover, while most companies resorted to price hike, many companies even developed innovative cost management strategies like tinkering with product size and weight, forward covers, change in product mix and better supply chain mechanics to tackle this challenge. This too helped minimise costs resulting in volume growth.