May 30, 2007|
FMCG Mid-cap: FY07 review...
The financial year has come and gone! The annual results that were awaited amidst much hype and expectations have been declared. The performance of the midcap FMCG has been well in line with what we expected. The volume growth continues to be encouraging. The midcap FMCG companies continued their good performance throughout the fiscal. In this article, we bring you an analysis of the performance of 4 mid-cap FMCG companies under our coverage. This analysis comprises of Marico, Pidilite, Godrej Consumer Products (GCPL) and Colgate.
As regards operating metrics, the topline growth seen was a handsome 28% YoY. However, margin contraction was evident, with all the companies witnessing higher costs as a percentage of sales. At the same time, due to higher interest costs, the bottomline grew at a slower pace than the topline performance.
|Operating profit (EBDITA)
|Operating profit margin (%)
|Profit before tax
|Profit after tax
|Net profit margin (%)
|* (results of Marico, Colgare, Pidilite and Godrej Consumers)
What has driven performance in FY07?
Volume driven: FY07 was characterised by strong volume growth for all the midcap FMCG companies. Across categories, volume growth was witnessed. The topline for the 4 FMCG midcap companies has grown by 28% YoY in FY07. Good volume growth along with selective price hikes led to the robust performance. Prices of select brands across categories such as detergents, soaps, cosmetics and toothpaste were up by 5% to 20%, thanks to a steep surge in input and freight costs as well as the end of price war. Consumer demand continued to be robust, having grown by 12% to 15% last year. High-margin products did well, riding on the back of factors like improved purchasing power and product innovations, which was further fuelled by modern trade.
On basis of company performances, Marico performed well with a 36% YoY growth, led by the franchise expansion across its categories. All the business segments namely, domestic FMCG, international FMCG, Kaya Skin Solutions and Sundari Spa Skin products recorded high growth rates. Also, the increase in brand building led to healthy volume growth. Colgate recorded a 10% unit volume growth and 9% value growth in its core toothpaste category during the year on a YoY basis. Its market share also improved by 80 basis points to reach 48.9%. In toothpaste, the same jumped 180 basis points and in toothbrush reached 35.4% in FY07 (both in volume terms). Strong trends in end user industries led to a 27% YoY growth in the topline of Pidilite with both its segment growing by 23% YoY. The 35% YoY growth in GCPL's consolidated topline during FY07 was led by strong performance from the company's personal care division, which grew sales by 62% YoY. Growth in the personal care segment was led by the toiletries segment (around 46% of personal care segment revenues), which recorded a strong sales growth of 163% YoY during the fiscal. The other sub-segment of hair colour, where GCPL is among the market leaders, witnessed a sales growth of 29% YoY.
|As a % of net sales
|Total Cost of goods
Margins fall: In FY07, operating margins fell by nearly 110 basis points. Higher raw material costs led to the margin pressure. Inspite of selective price hikes done by the companies, the margins have declined. Also the advertising costs have increased. Companies are heavily investing in brand building and introducing newer products and extensions. This is a clear indication of the fact that competition is here to stay, and could only intensify in times to come.
Bottomline view: Lower margins aided by higher interest costs led to the bottomline trailing the growth in the topline. Interest costs were higher due to acquisitions and expansions of capacities. While the tax rate fell for Colgate, due to its Baddi plant, Marico's effective tax rate inclusive of fringe benefit tax and deferred tax during the current fiscal is about 25% (including the one time impact of provision for earlier years). This is as compared to 11% during the same period in the previous year. The increase in the effective tax rate is mainly because of the tax exemption on some of the manufacturing units being exhausted. Even GCPL's tax expenses increased by a substantial 116% YoY (effective tax rate increased from 8.5% in FY06 to 15.4% in FY07), thereby paring the bottomline growth during the fiscal.
What to expect?
The year saw the firms in India doing a balancing act. On one hand, rising affluence has resulted in consumers spending more on premium products. At the same time, despite rising input costs, companies were forced to maintain certain price points at the lower end to increase their volume growth. Going forward, we expect the FMCG sector to continue its growth momentum driven by strong volume growth. The players would continue spending heavily on promotions and new launches. Fast growth of modern retail will also spur consumption of branded goods. Operating margins, however, are likely to remain flat or be hit further, with most companies indicating that ad spends would be maintained at current levels or may be hiked further.
More Views on News
Aug 9, 2017
While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.
Dec 9, 2016
Procter & Gamble Hygiene and Health Care has announced the first quarter results of the financial year ended June 2017 (1QFY17). The company's sales rose by 12.5%YoY while net profit rose by 50.1% YoY during the quarter.
Nov 30, 2016
Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.
Nov 30, 2016
GSK Consumer Healthcare declared results for the quarter ended September 2016. The revenues dropped by 1.3% during the quarter as compared to a year ago; while the profits declined by 16.6% YoY during the quarter.
Nov 28, 2016
Marico has reported a flat topline while the bottomline has grown by 18% YoY during the quarter.
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Aug 22, 2017
Post demonetisation, a cut in bank savings deposits rates was in the offing.
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407