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Is the FMCG sector staring at a growth slowdown?
Jan 28, 2016

In last couple of weeks, FMCG giants Hindustan Unilever (HUL) and ITC both announced their December quarter results. Both the companies reported sluggish growth and missed analyst expectations.

As per G Chokkalingam, founder, Equinomics Research and Advisory, FMCG companies are seeing a deflationary scenario, triggered by lower commodity prices. This is unlike during 2008 crisis when FMCG delivered double-digit growth. If the commodity prices remain on the lower side for a sustained period, it will impact consumption.

As per chart below, HUL and ITC revenue growth has fallen from double digit to single digit in recent quarters.

In such an environment, both firms are actively looking for triggers outside the traditional organic model and looking for mergers and acquisitions (M&A) strategy to generate growth. For instance, HUL recently acquired Ayurvedic brand Indulekha and ITC acquired B Naturals Juice in May 2014, followed by acquisition of Salvon and Shower to Shower brands from Johnson & Johnson.

While FMCG volume growth has shown some signs of revival, pricing is becoming a challenge given the benign costs and the competitive intensity. FMCG companies are therefore focusing on acquisition strategy to improve turnover and investor sentiment. Companies are also focusing on increasing share of premium products that will improve margins.

Data Soruce: Business Standard, Capitaline

This Chart Of The Day was published in The 5 Minute WrapUp - Our Favourite Companies for the Current Environment

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