FMCG cos to see robust volume growth (updated - 22 July 2009)
Fast moving consumer goods (FMCG) companies, say analysts, may register a lower year-on-year (YoY) sales growth but higher volume growth for the quarter ending June 30. The full benefits of falling commodity prices and lower input costs should also increase the gross margins of these companies, they said.
A survey by five brokerage houses — SBICap Securities, Angel Broking, ICICI Securities, Motilal Oswal and HSBC Securities — reveals that after avolatile calendar year which saw input costs rise to record levels in the first half and then fall dramatically in the second half, FMCG companies will now see the benefit, as it usually takes a quarter for falling costs to show in the results.
Sector Specific - FMCG
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“The FMCG universe is likely to register lower sales growth of 10.9 per cent yearon-year (y-o-y) due to muted sales growth in Hindustan Unilever (HUL) and ITC, and lower price growth for most other companies. However, volume growth is expected to be strong for most categories. Lower input costs and excise benefits will result in margin expansion and, hence, we expect operating profits for the sector to grow 21.5 per cent yo-y,” say ICICI Securities’ analysts.
“The volume-led growth will be led by led by companies like GlaxoSmithKline Consumer Healthcare, Nestle and Dabur,” forecasts Anand Shah, FMCG sector analyst with Angel Broking, who expects the sector to record a 12 per cent net sales growth.
With most companies either effecting a direct rollback in prices (HUL, Marico) or offering various trade and consumer promotions, growth in sales will be mainly volume driven. “FMCG companies will post 8.7 per cent growth in sales, 15.2 per cent in Ebitda and 13.6 per cent in net profit. Excluding HUL, the growth would be much better at 15.4 per cent in sales, 20.2 per cent in Ebitda and 24.3 per cent in net profit,” says Pritee Panchal, FMCG sector analyst with SBICap Securities.
FMCG Companies (updated - 10 July 2009)
Despite concerns about a less-than-normal rainfall, the BSE FMCG Index continues to out perform the market. Over the past month, the index has risen by 8 per cent whereas the BSE Sensex has lost 8 per cent. The monsoon does impact private consumtption, although to amuch smaller extent than in the past. Also, it has been seen that in years of deficient rains, revenues of FMCG firms hardly grow.
A fairly large share of the sales of FMCG firms comes from the hinterland and a weak monsoon could hurt their business though the impact could be far less severe than in past years because of the rural stimulus package provided by the government.
The Street is also probably hoping that the monsoon will pick up in the crucial month of July when most of the sowing is done. Also, it seems to be focusing on the June 2009 quarter numbers which are expected to be strong. Indeed, most FMCG firms are expected to see their operating profit margins expand in the June quarter which will be perhaps the first quarter when the full benefit of lower input costs will be felt.
Morgan Stanley estimates that for its universe of companies, the expansion in margins may be in the region of 130 basis points. Of course, a part of this would be due to strong double-digit revenue growth that most companies are expected to post, the possible exceptions being Tata Tea and ITC.
The top line, for most players, is likely to be driven by volumes rather than price increases — in fact companies have dropped prices and introduced products at lower price points in a bid to push sales.
source - BS
However, going ahead, while the makers of personal and packaged goods should benefit with no letdown in consumer demand, especially with the benefits of the National Rural Employment Gurantee Scheme and farm loan waivers causing rural demand to hold strong, weak macroeconomic conditions, coupled with falling income levels, could lead to moderation in consumer spending in the ensuing quarters.
“If the monsoon is poor, it will affect consumer purchasing power. There could be arisk to revenues for the next three quarters, but this will be at least partially mitigated by social sector spending, as laid out in the Union Budget,” cautions an HSBC Securities results forecast.
source - BS