Volumes, price hikes to drive FMCG sales up 18-20% in Q4
Fast moving consumer goods companies seem to have ridden the economic slowdown quite well, and are expected to report a strong growth in volumes, even as firms hiked some product prices to offset high input costs.
April 21, 2012 / 14:06 IST
Moneycontrol Bureau
Fast moving consumer goods companies seem to have ridden the economic slowdown quite well, and are expected to report a strong growth in volumes, even as firms hiked some product prices to offset high input costs.Overall, analysts expect FMCG companies on average to report 17-20% year-on-year revenue growth in the fourth quarter, while profits will also likely grow in a similar range."(Fourth quarter) consumer demand across segments has been relatively robust despite initial signs of softening in certain categories in Q3 FY12," said Amnish Aggarwal of Motilal Oswal Securities.It was a mixed trend as far as input costs are concerned. Prices of commodities like palm oil, copra, wheat and coffee were down. But prices of milk, wheat and chemicals like LAB and titanium dioxide hit their peak, prompting several companies to hike prices.Despite the price hikes, volumes have not taken a big hit, which has come as a relief."We expect the Indian FMCG sector to report strong volume-led revenue growth in the fourth quarter. We estimate the sector to report 9.5% volume growth and 7% price growth, translating to a revenue growth of 17% for fourth quarter," said Naveen Kulkarni and Ennette Fernandes of MF Global."We expect the FMCG sector to continue its healthy revenue growth momentum in Q4 FY12 as well. The growth would be driven mostly by price increases as the full impact of price hikes taken over the past one year to mitigate the input cost impact will be visible in Q4 FY12," said IIFL India Private Clients in its preview report.Among the large caps, Hindustan Unilever's net sales are expected to grow 16-17% year-on-year in January-March, while ITC's net sales growth is seen around 14-15%, according to analysts.Among the mid-caps, Godrej Consumer Products is likely to report over 30% year-on-year growth in net sales, led by strong growth in soaps and household insecticides as well as consolidation of acquisitions.For most part of FY12, FMCG companies controlled advertising spends to protect margins. However, there is likely to have been some revival in ad spends in the fourth quarter, especially, to promote new products launched by some companies. Nestle, for instance, launched powdered desert mixes under the Milkmaid Creations brand, HUL expanded its Lakme and Axe range of products and Dabur rolled out its Almond hair oil nationally.Margins are likely to be a mixed bag, and, analysts say some companies could see their margins crimp due to higher ad spends.STOCK TALKFMCG shares are usually considered as a safe defensive bet when the overall markets are volatile and the sector has played its role to perfection.Since close on March 31, 2011, CNX FMCG index is up 32%, while the wider Nifty has shed 9%. The FMCG index has also outperformed the broader market since December-end, with the FMCG index rising 19% versus a 15% gain in NSE Nifty.V Srinivasan and Sourabh Taparia of Angel Broking feel the long-term consumption story for the FMCG sector remains intact. However, any further re-rating from current valuations seems less likely. Aggarwal of Motilal Oswal too feels there is scope for valuations to ease from current levels.If you still want to invest in FMCG, then one has to be stock specific say analysts.Aggarwal, for instance, has a "buy" only on ITC, Marico, Pidilite Industries and Asian Paints. Srinivasan and Taparia of Angel Broking recommend a "buy" only on Tata Global Beverages and an "accumulate" on Britannia, Dabur, Godrej Consumer Products and ITC.MF Global's Kulkarni and Fernandes have a "buy" on HUL, Nestle, Dabur, Godrej Consumer and GlaxoSmithKline Consumer, Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
