FMCG companies bogged down by inflation

FMCG companies continued to ride a robust growth trajectory in September 2012 quarter. However, there has been a divergence in the performance between pure food based and other FMCG companies.
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Dec 14, 2012, 04.37 PM | Source: Equitymaster.com

FMCG companies bogged down by inflation

FMCG companies continued to ride a robust growth trajectory in September 2012 quarter. However, there has been a divergence in the performance between pure food based and other FMCG companies.

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FMCG companies bogged down by inflation

FMCG companies continued to ride a robust growth trajectory in September 2012 quarter. However, there has been a divergence in the performance between pure food based and other FMCG companies.

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FMCG companies continued to ride a robust growth trajectory in September 2012 quarter. However, there has been a divergence in the performance between pure food based and other FMCG companies. While each of the diversified FMCG companies has clocked double-digit sales growth, the turnover of large food companies has grown in single-digits. Poor off take was the main reason for the slow growth in turnover.

 

 

 

 

 

 

 

Nestle has stated pricing issues in some categories for the sluggish 7.9% topline growth in September 2012. Even biscuit company, Britannia witnessed 7-8% rise in offtake translating in a 9.3% rise in sales for the quarter. The performance by these companies has been in line with moderation in consumption of discretionary food items. According to IMRB data, the offtake of biscuits, noodles, malted drinks, butter & cheese, soft drinks, ketchup and jams witnessed significant slowdown in 1HFY12 whereas soups saw a 14% fall in volumes. Even Marico's Saffola oil present in the super premium refined edible oil clocked the slowest rise of 6% in offtake during the September 2012 quarter. However essential food items like salt and tea have maintained their growth tempo. This shows that persistent inflation and general slowdown is tightening the purse strings of the average consumer.

 

 

 

 

 


 

 

 

Source: IMRB

However, the slowdown is not limited to food articles. Even personal care products have been impacted by lower discretionary spending. Hindustan Unilever (HUL) saw a slower rise in sales of its personal care products in September 2012 quarter on account of inflation coupled with lower offtake by Canteen Stores Department (CSD). However, the effect was offset by price hikes undertaken in soaps & detergents.

Indian FMCG companies were unaffected by the slower sales. Dabur has attributed moderation in juice sales and slower purchases by CSD to tapering of its volume growth to 9% from 11% in the previous quarter. However, robust growth in international operations has saved the day for Dabur . In case of Marico , brisk growth in hair oils and acquisition of Paras brands have come to its rescue. Even Godrej Consumer Products that has been aggressive on its inorganic footprint has benefitted by consolidation of international operations coupled with robust performance of its household insecticides business.

In a nutshell

Packaged foods, which fall in the bracket of impulse purchases, have witnessed slowdown in offtake. Personal care products have also been impacted by lower consumer spends, but price-hikes in soaps & detergent category has buffered the overall impact. Moreover, many of the companies that derive a substantial part of the revenues from overseas operations have weathered the storm better. This is reflected in the fact that companies like Godrej Consumer Products, Dabur and Marico have clocked the highest sales growth in September 2012 quarter.

Therefore, moderation in discretionary spends have hit pure food based companies more than diversified FMCG companies.

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