Sales expanding in the double digits, profits galloping faster than sales and costs well under check - the FMCG sector has presented a picture of health in the latest December quarter. This is even as most of corporate India struggled to deliver growth.
Accelerating sales
The 14 listed FMCG companies that have announced results so far (only Nestle India is yet to declare numbers) managed to expand their sales by nearly 20 per cent this quarter, compared to the same quarter a year ago. This is a tad higher than their run rate of 19 per cent in the September quarter. Their combined profits vaulted by 30 per cent, again much higher than the 17 per cent they managed in September.
The expansion in sales came both from a higher volume of products sold and price increases taken by players. Hindustan Unilever, for instance, owed its 16.5 per cent sales growth to volumes rising by 9.1 per cent and price increases bringing in 7.4 per cent.
Demand growth was not uniform across categories though. Hair oils delivered 20 per cent plus growth. The actual demand for soaps and detergents grew in the single digits but was made up by price increases. Shampoos managed a small single digit growth after shrinking for many quarters. Food products delivered 15-20 per cent for most players but grew slower than the last quarter.
Many legs to growth
Most players claimed that they saw no slowing down in the offtake for FMCG products despite inflation squeezing the consumer wallet. Rural demand continued to be strong, driven by a good monsoon and agricultural output. Resurgent modern trade and consumers preferring premium products, on the other hand, ensured brisk skin care, shampoo, hair oil and processed food sales in the cities.
Companies such as Dabur, Marico and Godrej Consumer, that have an overseas leg to their operations in Nepal, South Africa and Europe, saw their international operations deliver higher sales growth than the Indian leg, adding to the topline. The weaker rupee helped their cause in most cases.
Big beats small
Larger FMCG companies also expanded much faster than the smaller ones in the latest December quarter. Sales growth for the top five players was 24 per cent, at almost twice the rate managed by the bottom five. This seems to be a sign of dominant players in each segment gaining market share at the expense of challengers and also-rans.
If sales held up pretty well, the real story lies in players managing to expand profits at the pace they did. The 30 per cent profit increase managed by the FMCG sector makes it a top performer in the listed universe.
Numbers show that the growth in profits came from two key sources — price increases and cutbacks in advertising and promotional spends. Here too, there was a divergence.
Players in categories such as soaps, detergents and toothpastes, which witnessed the highest escalation in input costs, economised on adspend, almost in unison. Those in hair oils and foods, however, saw high adspend continue, with their profits driven by price increases.
Overall, FMCG was one of the few sectors that managed to expand its profit margins in the December quarter. With raw material prices recently cooling off and the rupee looking to bottom out, cost pressures for the sector look to be moderating.
The question now is whether this will prompt players to reduce prices to stoke demand or retain the price line so that they can get back to bigger ad budgets.