Slowdown hero FMCG under strain, sales growth tumbles

But Fall In Input Cost Helps Double Cos' Profit Growth In Jan-Mar

 THE fast-moving consumer goods (FMCG) sector, touted as the economic segment least affected by the slowdown, showed signs of severe strain in the final quarter of 2008-09 as sales growth took a sharp tumble.
    Aggregate net sales of the top 14 FMCG companies, which have grown at a reducing rate during the past three quarters, saw the pace of expansion fall by half between January and March. But net profit growth during the past three months of the fiscal doubled from the year-ago period, helped by a fall in raw material costs and savings on advertising expenditure. This has also enabled the firms maintain their operating profit margins.
    The poor show by the sector is primarily attributed to the declining share of private financial consumption expenditure (PFCE) in India's gross domestic product (GDP). PFCE covers spending on all kinds of consumer goods and services, including food, beverages & tobacco (F&B), fuel, rent, transportation, healthcare and education.
    Although PFCE's contribution to GDP has been declining over the years, it has been exacerbated due to the economic slowdown. Such expenditure, which accounted for nearly 69% of the country's GDP at market price in FY03, declined to a little over 51% in the March 2009 quarter.
    According to the Central Statistical Organisation, total expenditure on F&B goods grew at 3.1% (at constant prices) between FY00 and FY08. This was much lower than the GDP growth of 7.2% during the period.
    Large FMCG companies such as Hindustan Unilever, ITC and Marico reported results that were below market expectations, affected by downtrading by consumers, discount-driven sales, lower market growth in certain product categories, extraordinary losses and the overall slowdown in consumer demand. However, companies, such as Dabur, Godrej Consumer Products and Glaxosmithkline Consumer Healthcare, beat market expectations despite the trying conditions. Those, such as Nestle and Colgate India, managed to maintain a double-digit profit growth. A niche product mix, aggressive marketing and successful product launches have enabled these companies to buck the negative trend in the sector.
    A trend that is quickly emerging is the out-performance of companies with strong regional brands. Companies such as Jyothy Laboratories and Godrej Consumer Products, have fared better than rivals because valuefor-money regional players are now able to eat into the market share of the big companies.
    The performance of FMCG companies during the current quarter is likely to depend on factors such as input prices, extent and nature of advertising, new product launches and the general economic environment influencing the consumer demand.
kiran.somvanshi@timesgroup.com 

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