Challenges persist but green shoots visible in FMCG sector!

Updated: Jul 30, 2014, 10:47 AM IST

Zee Research Group/Delhi

Major fast moving consumer goods (FMCG) companies have somehow managed to beat the slowdown blues during the first quarter of current fiscal (Q1FY15). However, it can be termed as a ‘mixed bag performance’ on volume growth front.

While, HUL and Dabur registered better volume growth figures, Colgate-Palmolive posted dismal volume growth in Q1FY15.

During Q1FY15, Hindustan Unilever (HUL), the FMCG giant, has posted a volume growth of 6 per cent. The reported figure of volume growth was above the street expectations of 4-5 per cent. While in Q4FY14, HUL registered volume growth of 3 per cent, in Q1FY14, it posted a figure of 4 per cent.

Low single digit volume growth of 6 per cent suggests that the operating environment remains challenging. Even Harish Manwani, chairman, HUL, in the results press release commented, “While we are seeing headwinds on market growth, consumer spending and inflation, we remain focused on managing the business for long term competitive and profitable growth and implementing our strategy with even greater rigor.”

Similarly, Dabur India posted numbers which were in line with market expectations. Company reported a volume growth of 8.3 per cent which was in line with street estimates of 8 per cent. While in Q4FY14, Dabur registered volume growth of 9.4 per cent, in Q1FY14, it posted a figure of 9 per cent.

However, the underlying volume growth of Colgate-Palmolive has slipped to multi-quarter lows of 5 per cent (YoY) in Q1FY15. It was expected that Colgate would clock the volume growth of 8 per cent. While in Q4FY14, Colgate registered volume growth of 7 per cent, in Q1FY14, it posted a figure of 11 per cent.

In order to tackle competitive intensity, HUL has reported a 6.2 per cent increase in advertising and promotion spends (ad spends) to Rs 944.88 crore during Q1FY15 over the corresponding period last fiscal. While, Colgate has witnessed a 15.9 per cent increase in these spends to Rs 180.55 crore, Dabur has registered a 12.6 per cent increase in ad spends to Rs 286.27 crore.

Looking at the ad spends to sales ratio, Colgate’s ad spends accounted for 18.99 per cent of sales, an uptick of 55 basis points over Q1FY14. In case of HUL and Dabur, ad spends as a per cent of sales has receded in Q1FY15 on YoY basis. While Dabur’s ad spends as a per cent of sales stood at 15.36 per cent, down nearly 8 basis points over Q1FY14, HUL’s ad spends accounted for 12.48 per cent of sales, a downtick of 82 basis points over Q1FY14.

With regards to the outlook on the FMCG demand, nascent signs of an urban recovery can be witnessed. According to Deutsche Bank, job creation index and consumer confidence index are showing signs of an uptick which will drive next leg of growth.

Likewise, commenting on the financial performance of Godrej Consumer Products during Q1FY15, Adi Godrej, chairman, Godrej Group, stated, “Quarter one of fiscal year 2015 has been a particularly challenging one. However, we feel optimistic that the worst is over.”

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