FMCG players upbeat after Q4 sales boom

16 Apr,2012

By Ratna Bhushan & Sagar Malviya


Consumer goods companies and retailers expect a spurt in demand this fiscal, buoyed by indications of better-than-expected earnings in the January-March quarter backed by a revival in consumer sentiment.


Analysts expect all leading FMCG companies to post strong results in the fourth quarter ended March and maintain their margins in the current fiscal, even as gung-ho investors have pushed shares of most companies to their 52-week high on the Bombay Stock Exchange this month.


“The last two quarters seem to have stabilised in terms of consumption though there have been price hikes,” said A Mahendran, MD, Godrej Consumer Products. The maker of Cinthol soap and Good Knight mosquito repellant expects its fourth quarter earnings to be better than analyst forecasts of 16-22 per cent increase in revenues.


Growth in FMCG product sales signals revival of consumer sentiment over 2011 when market growth slipped to 8 per cent from 12 per cent the previous year.


Companies now look to ride on high-margin products, rural demand and innovations to maintain the growth momentum without taking a hit on their margins.



They are buoyed by the fact that there is no significant indication of down trading, or the trend of switching to a cheaper brand due to price increase, by consumers despite 5-10 per cent increase in prices of daily use items like soap, toothpaste and hair oil. “We have not seen downtrading,” Anand Burman, chairman of Dabur India, which makes Vatika shampoo and Amla hair oils, said. He added that a combination of rural consumption and growth from mass-priced products in urban markets were triggering demand for Dabur’s hair care and oral care products.


But Harsh Mariwala, chairman and MD of Marico Ltd, which makes Parachute hair oil and Saffola edible oils, warned that margins may remain under pressure. “We expect healthy top line in continuation of the previous quarter…in terms of bottom line though, margin pressures will remain because of fluctuating raw material costs and complex global cycles,” he said.


Prices of menthol have shot up 40 per cent over the past two months, while palm oil prices have surged 10 per cent in the last one month. But analysts expect margin pressure to ease with innovation gaining centrestage. Then companies will gradually increase their advertising and marketing expenditure, Edelweiss Financial Services research analyst Abneesh Roy said. “We expect margins to begin slow northward trajectory in the coming months as raw material prices cool off and rupee depreciation reverses,” Roy wrote in a report early this month.



The country’s top retailer says that retail sales have picked up speed in the past two weeks and expects healthy demand to continue in the next two quarters. “While the January-March quarter was good and grew better than the same period last year with most retail segments growing by high single digits, we are seeing an upsurge in sales in the last two weeks across all formats,” Kishore Biyani, chairman of the country’s largest organised retailer Future Group, said.


He said there is an upsurge in sales of even consumer durables April onwards, adding that Pantaloon, Big Bazaar and Home Town have witnessed high double-digit growth. Apparel, toys and footwear retailer Lifestyle International’s MD Kabir Lumba said its sales grew the most in the fourth quarter. “We have seen a lift from the lower trading conditions of September to November. While we grew 22 per cent overall last year, the fourth quarter grew faster,” he said.



Makers of home appliances such as fridges and ACs are, meanwhile, reeling under the double whammy of late summer as well as price hikes. AC sales were down by 30-35 per cent year-on-year during the quarter, while there has been a marginal 3-5 per cent growth for refrigerators. “The overall market is down due to sluggish sales of cooling products. Temperatures are yet to rise to induce AC purchases, while the price increase for input cost and excise too have been a big dampener,” Kamal Nandi, VP (sales and marketing) at Godrej Appliances, said.


Prices of products have gone up by 10-15 per cent due to input cost hikes, upgradation in star ratings for energy labelling and increase in excise duties in the Budget.


While consumer sentiments had improved during the Republic Day period in January due to aggressive discounts and promotions by retailers, sales were muted in February and March. Whirlpool VP (corporate affairs and strategy) Shantanu DasGupta, however, said the new fiscal year has started in positive note. “April has started off okay, but it is early days yet,” he said.


“Individual companies may be growing, but that’s not due to demand. Instead, it’s led by innovation in new launches and distribution gains,” Mr DasGupta added. Electronic firms are now betting more on LCD and LED televisions, washing machines and microwave ovens for growth.


“Flat panel televisions continue growth momentum since this category did not see any significant price changes this year,” Samsung VP (audio-visual business) Raj Kumar Rishi said. Samsung expects sales of summer products like AC and refrigerators to gather momentum in the second quarter.


(With inputs from Writankar Mukherjee and Sarah Jacob)
Source: The Economic Times

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