Published on Fri, Nov 20, 2009 at 16:08 | Source : Reuters
Updated at Fri, Nov 20, 2009 at 17:23
Like this story, share it with millions of investors on M3
0
Like this story, share it with millions of investors on M3
Consumer firms hike ad spend, margin threat looms
Consumer firms in India are raising advertising and promotional spends this fiscal to lure shoppers and garner volumes but margin pressure due to rising costs may spoil the party.
The firm is relaunching its brands by promoting a new brand mascot in place of its iconic 'devil', which helped popularise the campaign "Neighbour's Envy Owner's Pride".
MARGINS MAY PLAY SPOILER
Although firms are bullish on their consumer strategy, analysts say the growth story does not seem as promising going ahead for consumer staples makers as input costs have started rising again, which is likely to put pressure on margins.
"Raw material costs are beginning to rise again with major commodities like oil already recovering... and other agribased commodities expected to see inflation," an analyst with the Noble Group said.
"This will result in the gross margin gains of the past few months unwinding with a number of FMCG companies reporting year-on-year increase in ad spend," he added.
This fiscal may also be a one-off in terms of high advertising budgets, which companies may be forced to trim in the coming year to safeguard margins.
"For the last 2-3 quarters they have had significant gross margin expansion due to the fall in input costs. Because of that leeway they had increased ad spends," said Angel Broking's Shah.
"That strategy has worked so far. Going ahead if they see any pressure in terms of margins because of input costs again rising then they will cut ad spends next year," he added.
