Personal care lifts HUL, Dabur, Colgate

Indian consumers continued to spend heartily on personal care and food products even as they deferred purchases of discretionary items last quarter. Or so it appears from the earnings log of fast moving consumer goods (FMCG) companies.

Major players such as Hindustan Unilever (HUL), Dabur India and Colgate Palmolive (India) also gained from increased focus on rural India and ramping up of distribution reach.
This, in fact, helped the players post strong sales growth even as demand in urban India showed signs of fatigue and factors like rupee depreciation, monsoon and inflation gave much reason to worry.

On Monday, HUL reported a 9% volume growth, while Dabur and Colgate reported 12% and 11% volume growth, respectively, showing consumer demand for items of daily necessities like toilet soaps, shampoos, toothpastes remained steady.

“The buoyancy in FMCG results in the first quarter has come from the personal care segment and so the consumer sentiment at least in this quarter doesn’t look affected so far,” said V Srinivasan, analyst at Angel Broking.
Dabur credited categories like health supplements, shampoos and foods for the 21% growth in its consolidated net sales.

Domestic growth for HUL was at 19%, with home and personal care growing at 20.6% and foods business growing at 10.6%.

On its part, Colgate did not just see sales rise 20%, but also increased market share in toothpastes and toothbrushes.

“Despite signs of an economic downturn and increased competitive intensity in the market, Dabur India has accelerated volume growth ahead of the market in its key categories. Dabur has laid the foundation for strong and profitable growth in future with an array of initiatives that include doubling our distribution footprint in rural India. These initiatives have already started to yield positive results,” chief executive officer Sunil Duggal said.

R Sridhar, chief financial officer, HUL, said that while the June quarter has seen a double-digit growth, both in urban and rural India, and largely led by price increases in the soaps and detergents category, the next 2-3 quarters might pose some challenges, depending on how the monsoon, rupee depreciation and inflation pan out.

“But when we look into the medium term, growth drivers for FMCG remain very positive. We have a strong execution plan in place for the next few quarters,” said Sridhar.
HUL’s total income increased almost 20% to `6,378.77 crore during the quarter ended June.

Where soaps and detergents growth of 24% was largely led by price (value) growth, personal products grew 17%, led by a double-digit volume growth, the company said. Packaged foods grew 17% and beverages by 7%.

“The environment continues to be challenging in terms of inflation and a general economic slowdown. In this context, we are implementing our strategy with even greater rigour and managing our business dynamically to remain competitive and cost efficient,” said Harish Manwani, chairman of HUL.

He also attributed the performance to the company’s rural focus.

By 2025, the Indian rural market is expected to grow more than ten-fold to a $100 billion opportunity for retail spending, he said.

HUL said inflationary pressures during the quarter came primarily from currency depreciation, which offset a softening in the prices of commodities like palm oil.

Also, greater media intensity led to an increase in advertising and promotional (A&P) spends, said Sridhar. The company spent 160 basis points, or 1.6 percentage points, more on A&P during the quarter.

HUL’s profit after tax but before exceptional items grew 48% to `855 crore. Net profit, at Rs1,331 crore, grew 112% before accounting for an exceptional income of `607 crore arising from the sale of properties (Gulita in Mumbai and a property in Whitefield, Bangalore).

Dabur’s topline growth of 21% was a few notches ahead of analysts’ expectations, driven by its recent acquisitions. Net profit for the first quarter marked a 16.9% surge to `149.40 crore.

Its foods business, led by packaged fruit juice brands Real and Real Activ, grew 34.5%, while shampoos grew 23% and the health supplements business grew 18%. Home care and skin care grew 14.4%and 13.3%, respectively. Where its domestic business grew 20%, international business, driven by GCC, Nigeria and Egypt grew faster at 24%.

Colgate Palmolive (India) saw net profit grow 17% to Rs117.4 crore riding on a 20% growth in net sales to `736.1 crore.

The company said it increased market share in the toothpaste category to 54.5% (January-June) from 52.4% (January-June 2011). In the toothbrush category, it increased market share from 36.3% to 38.2% during the same period.

In an inflationary environment, the company said it has continued efforts and focussed on programs to enhance efficiencies and reduce costs. “Prudent price increases and cost management enabled the company to maintain its strong gross margin for this quarter,” it said.

The quarter saw prices of commodities like palm oil soften a little. However, it may be too early to expect price cuts.
“Despite the softening of raw material prices, one cannot expect a decrease in prices because this has been offset by currency depreciation,” said Manwani. Also, the companies had not passed on the entire cost in raw material prices earlier, he said.

Srinivasan of Angel Broking said a clearer picture will emerge only in the next couple of quarters. “If the demand gets affected going forward, then the companies will not be able to increase prices in the coming quarters,” he said.

An analyst with a foreign brokerage concurred. “The next two quarters are going to be more significant in determining if the consumer growth story is on track. If the demand slows down, companies will not be able to increase prices; it will also mean increased ad spends, which will affect their gross margins further. There are red flags in the next few quarters,” he said, requesting anonymity.
Manwani did credit