Consumer goods firms likely to post strong revenue growth

Consumer goods companies will post robust revenue growth in the June quarter driven by volume sales in the home and personal care sectors, analysts said, but warned further increases in prices to offset rising raw material costs will slow growth.

A Mint survey of six broker- ages estimates 17-21% growth in revenue for consumer goods companies in the first quarter of the fiscal.

Rising commodity costs, though, will see their operating margins dip by 70 basis points year-on-year, keeping operating profit growth at 16.9%, said a 4 July report by Religare Capital Markets Ltd. One basis point is one-hundredth of a percentage point.

But moderation in advertising and marketing budgets and strong sales growth will help curtail the impact, it added.

Bajaj Corp. Ltd, Colgate-Palmolive (India) Ltd, GlaxoSmithKline Consumer Health- care Ltd and Jyothy Laboratories Ltd are likely to see the highest margin declines year- on-year, while Britannia Industries Ltd, ITC Ltd and Hindustan Unilever Ltd (HUL), the country's largest consumer goods company by sales, will see stronger margins, Religare said.

Raw material prices, with the exception of agro products, were higher during the quarter over the same period last year.

Prices of raw materials such as copra doubled year-on-year.

Prices of crude oil derivatives trended higher in the wake of higher crude oil prices, according to a 12 July report by brokerage Anand Rathi Share and Stock Brokers Ltd.

During the June quarter, biscuit manufacturers such as Parle Products Pvt. Ltd and Britannia Industries Ltd in- creased prices by 8-12%.

Oral care company Colgate- Palmolive increased prices by more than 5%. Food Company Nestle India Ltd raised the price of its KitKat chocolates by 20% and HUL increased the price of its Hamam soap by over 5%.

“We expect higher raw mate- rial costs to continue impelling consumer companies to aggressive price hikes”, Anand Rathi said. Price increases and softening wheat and sugar prices will give some relief, said Pravin Kulkarni, general manager, Parle Products.

“There has been no slow- down in demand,“ said A. Mahendran, managing director, Godrej Consumer Products Ltd, which increased the price of its powder hair dye by 9%.
Kulkarni expects the second quarter of fiscal 2011 (July to September) to actually see better volume growth and profits, as schools reopen and on ac- count of good monsoons.

But volume growth in categories such as coconut oil and malted food drinks has shown signs of softening, Motilal Oswal Financial Services Ltd said in a July report.

“We believe further price in- creases in the second half of fiscal 2012 could result in softening (of demand) in other categories as well,“ Motilal Oswal said, factoring in slower volume growth for all consumer packaged goods companies except ITC and GlaxoSmithK- line Consumer.

In a quest for volume-led growth, companies have maintained their pace of launches.
Grooming products company Gillette India Ltd has entered the men's skincare segment launching foaming wash, moisturisers, skincare lotion and scrubs.

Colgate has introduced pre- mium sensitive toothpastes under the brand Colgate Sensitive Pro-Relief.

Emami Ltd launched Navratna Coconut cooling oil and glucose powder under the Zandu franchise and Zydus Wellness Ltd introduced Sugar Free drops.

For companies such as Dabur India Ltd and Marico Ltd, the June quarter is expected to see international revenue increase as the companies complete a slew of acquisitions.

For Dabur, ICICI Securities Ltd expects contribution from international businesses to in- crease to about 30% to its over- all revenue, compared with 14.3% in the March quarter.

For Marico, the brokerage sees international revenue in- creasing to about 25% of over- all sales, compared with 17% in the March quarter.

The BSE FMCG index gained 12.49% in the June quarter, while the benchmark Sensex index declined 3.08% over the three months.

(Source-: mintlive.com)