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FMCG companies defy headwinds of inflation, global economic slowdown

The fast moving consumer goods (FMCG) story for the June quarter has been good so far, underlining the capacity of consumption in India to hold its own despite the headwinds of inflation and global economic slowdown.

Shamni Pande        Last Updated: July 24, 2012  | 09:55 IST

 The fast moving consumer goods (FMCG) story for the June quarter has been good so far, underlining the capacity of consumption in India to hold its own despite the headwinds of inflation and global economic slowdown. Hindustan Unilever's net profit beat all market estimates to touch Rs 1,331 crore , which represents a 112 per cent growth from the previous year's level in the same quarter of Rs 627 crore. Of course, this is after accounting for an exceptional income of Rs 607 crore from the sale of properties. Net sales of the company rose by 13.7 per cent to Rs 6,250.15 crore for the quarter, from Rs 5,495.91 crore during the same period of the previous fiscal year. Profit before interest and taxes (PBIT) jumped 30.2 per cent year on year to reach Rs 908.82 crore.

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The story is not all that different for home-grown multinational Dabur India, which has reported a 17 per cent increase in its net profit to Rs 149 crore. This is obviously the result of robust sales of consumer care and food products. Its net sales for the April-June quarter were up 21 per cent to Rs 1,462 crore.

Moving on to Colgate-Palmolive, its net sales of Rs 736.1 crore amounts to a 20 per cent rise over the same quarter of the previous year. Net profit for the quarter was reported at Rs 117.4 crore, a 17 per cent increase over the net profit of Rs 100.4 crore for the same quarter of the previous year.

In all these instances, the companies advertising and promotion budgets have grown. For instance, HUL increase its advertising budget by Rs 187 crore in the quarter ending June. The companies have also entered new categories that to some extent depend on consumer indulgence shopping.

In the first quarter of the financial year 2012/13, for instance, HUL relaunched its flagship brand fairness cream, Fair and Lovely, as well as the Axe soap bar.It forayed into the mouthwash category with Pepsodent mouthwash. Colgate too launched Colgate 360 Battery Toothbrush and added new variants to its mouthwashes. Indeed, the company grew even as it undertook what it called "prudent price increases". Of course, these were also backed with prudent cost management.

Results of a number of other leading FMCG companies including ITC, Nestle and Jubilant FoodWorks are awaited. The market has responded well with the stocks of these companies going up as there are expectations of good results. While questions about the impact of the deficient monsoon on the performance of these companies remain, the fact is that rural India has not disappointed the projections of these companies, as it is no longer as reliant on agriculture as its primary source of income as it used to be.

The service sector has grown sharply. Of course, investors must always track the pressure on margins of companies and their growth in volumes, but there appear to be no major upsets in the results story so far. It is therefore not surprising to find HUL Chairman Harish Manwani, stressed the need for rural India to go beyond agriculture to achieve accelerated and sustainable growth while addressing shareholders at the 79th annual general meeting of the company on July 23 in Mumbai.

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