While street consensus is that fast moving consumer goods (FMCG) companies are expected to post a 12%-13% growth in net profit in the December quarter, things aren’t all hunky-dory going forward.
That’s because spiralling food inflation, which has already impacted consumer wallets, and, consequently, the business of FMCG players, promises to cause more damage.
The latest retail sales audit of AC Nielsen shows there has been a marked slowdown in retail sales in most consumer goods categories.
FMCG sales grew 7% year-on-year in October-November 2009 compared with 14.8% in the first half of the current fiscal, Nielsen data showed.
Surging inflation is cited by experts as the primary reason for a slowdown in the sales of several FMCG categories, especially soaps and detergents.
Revenue growth has been down for tea, coffee, talcum powder, hair oil, milk powder, noodles, toothpaste, biscuit and skin care in the first half of the current fiscal.
Tea saw a volume de-growth of 6%, coffee 7% and talcum powder 3% in the two months.
Milk powder, hair oils, and noodles witnessed a significant slowdown in the range of 9 to 11.3 percentage points.
This has directly impacted sector leaders such as Hindustan Unilever Ltd (HUL) and Nestle.
With HUL showing almost flat - 0.3% — sales growth compared with 8.1% in the first half, primarily due to poor volume growth, Nestle clocked an 8.8% sales growth compared with 15.8% in the first half.
Other companies such as Colgate, Dabur, and ITC also reported sales growth in single digits (4-8%).
Marico Ltd, P&G and Godrej Consumer Products were no better.
For Brittania, sales fell 2.1% because of a tardy biscuits market.
While FMCG players are likely to benefit from heavy margin expansion owing to savings on input costs during the quarter; rural demand could be impacted.
Pritee Panchal, SBICAP Securities Ltd said rural demand, which so far has been the supporting driver for the industry could take a hit due to insufficient rains affecting output of major agri-commodities; although increase in agri-commodity prices is expected to make up for the loss in output to a certain extent.
“However, the final impact can be gauged only at the end of the Rabi crop season and government estimates about the agricultural output,” Panchal said.
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