Friday, March 29, 2024

Advertisement

FMCG companies feel slowdown heat

By Dinesh Jain | November 02, 2016

September quarter results till now of consumer goods companies show most faced a tough time in the period

The September quarter results till now of consumer goods companies show most faced a tough time in the period.

Asian Paints’ 12 per cent volume growth was an exception in the fast moving consumer goods (FMCG) segment. Most others had low single-digit volume growth, below the five to eight per cent they saw earlier.

Hindustan Unilever (HUL) had a one per cent fall in volumes, its lowest in seven years. “The market has been challenging,” said Sanjiv Mehta, its managing director. “Value growth for the (FMCG) market has been in the two-three per cent region for some time. Volume growth has been soft.”

An average of the net sales growth of 10 companies whose quarterly results are out so far shows revenue growth of 7.6 per cent. Average net profit growth was better at 15.5 per cent, according to data compiled by BS Research, as companies strove to rein in expenditure.

Sunil Duggal, chief executive officer, Dabur India, says: “The overall business environment remained slack as demand was tepid in the domestic market.”

Analysts say this was also because price increases were effected in a weak demand environment. Crude oil rose close to 20 per cent in those three months, to nearly $50 a barrel. This impacted all crude-linked derivatives, inputs for many consumer products.

And, palm oil, which goes into making soap, was up 15-16 per cent. It was this sharp increase in the latter that prompted HUL to increase soap prices, prompting a decline in volume growth.

The assessment of most is that the FMCG market will show signs of recovery as events such a good monsoon, direct benefits transfer, and enforcement of the pay commission and higher military pensions bear fruit. So, consumers will be in a better position to absorb price increases in the second half of the financial year. Even so, say experts, companies are expected to be cautious in this regard, to ensure volume growth does not suffer substantially.

Consumer goods maker Marico said, “The latter part of the third quarter (October-December) of FY17 should see consumption lifting as the triggers in the first half of the year, including a good monsoon, begin to pay off. Deflationary pressures are likely to be neutralised from the fourth quarter.”

Rural markets, which gives FMCG a third of sales, has been under stress for some time but that could turn a corner. “With more money coming in the hands of people because of a good harvest, it should benefit the market,” says Mehta of HUL.  In HUL and Dabur's case, the rural market gives a little over 40 per cent of sales.

However, some warn that recovery in rural areas could be slower than expected. “Typically, FMCG reacts with a lag to any stimulus. While a good monsoon after two years of drought is good, that might not be enough to give consumption a significant uptick,” says G Chokkalingam, founder, Equinomics Research & Advisory.

Advertisement

Related News

Advertisement
Have You Say
Advertisement
Resource
Follow Us On
Advertisement