X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
FMCG majors: Not way behind! - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jun 6, 2007

    FMCG majors: Not way behind!

    Like the midcaps, though slower, the FMCG large caps continued to sustain robust growth momentum supported by the shift from the unorganised sector, increased realisations and acquisitions. The pressure from the rising input prices was visible leading to a fall in the margins. We give you a review of the performance of the majors like ITC, Dabur, Tata Tea and Britannia for the year.

    Rs (m) FY06 FY07 Change
    Net sales 165,273 208,469 26.1%
    Expenditure 121,488 156,841 29.1%
    Operating profit (EBDITA) 43,785 51,628 17.9%
    Operating profit margin (%) 26.5% 24.8%  
    Other income 3,481 4,851 39.4%
    Interest 1,329 2,970 123.5%
    Depreciation 4,665 5,257 12.7%
    Profit before tax 41,272 48,252 16.9%
    Tax 11,911 13,823 16.1%
    Profit after tax 28,964 35,485 22.5%
    Net profit margin (%) 17.5% 17.0%  
    * financials of ITC, Dabur, Britannia and Tata Tea

    Consumption: Increasing income levels are always accompanied by a change in the food basket. As the lifestyle improves consumption of milk, juices, biscuits increase. The demand for convenience and healthy foods increases. Government's financial assistance for setting up and modernising of food processing units, creation of infrastructure, and support for research and development has further provided a booster. The change is not only visible in the food segment but also in case of personal and day-to-day items like soaps, hair care products etc. Consumption is driven by expansions in both the rural and urban markets and increased realisations across most categories. A noticeable shift from the unorganised sector to the organised sector in many categories such as biscuits, personal products and detergents also supported growth. The FMCG industry grew by 22% in the year 2006.

    FMCG YTD Dec'06 Sales Value (Rs bn) Value growth (%)
    All India (Urban +Rural) 712.9 21.7
    All India (Urban) 473.9 18.5
    All India(Rural) 239.1 28.8
    Source: Dabur presentation

    The large FMCG companies witnessed a strong double-digit growth in topline. Selective price hikes coupled with new variants and higher volume growth led to a 26% YoY growth in sales. This was further aided by acquisitions done by Tata Tea and Britannia. ITC witnessed stronger growth of the non-cigarette businesses which grew by 33% YoY.

    Changes in FMCG sector

    a) 33% surge in the tax incidence on cigarettes with the levy of 12.5% VAT by states effective April 2007 and a 5% excise hike.

    b) Companies more open to inorganic growth in India and abroad.

    c) Increasing realisations across products, however volumes witnessed growth.

    Brand Old price (Rs) New Price(Rs) %
    Dabur Amla 25 26 4.0%
    Britannia Bourbon Biscuits 18 20 11.1%
    Britannia Marie 6 7 16.7%
    Aashrivaad Atta 26 28 7.7%
    TataTea Refill 98 102 4.1%
    Tetley Tea 51 55 7.8%
    source: Equitymaster research

    Higher costs: Like the midcaps the large caps too faced the pressure from rising input prices, thereby leading to a fall in the operating margins. While ITC margins fell by 200 basis points, Dabur did see inflationary pressure, but the company was able to manage the same by taking moderate price increases in the range of 4% to 5%. Britannia was the worst hit with the operating margins falling to 5.7% from 11.6% in FY06. Britannia's margins in recent quarters have been severely dented by a huge 15% to 20% rise in input costs, especially wheat, sugar and edible oils. However, Britannia is likely to register improvement due to increased realisations and tax benefits.

    Net profits: The growth in the net profits was lower than the topline growth. This was mainly due to the higher interest cost on loans taken by Tata Tea to fund its acquisitions. ITC and Dabur faced lower interest charges. However, with the sale of Glaceau, Tata Tea has surplus cash to repay its debt, which would reduce its interest costs going forward.

    To conclude...
    With the per capita income increasing and the high-income households figure going up, the demand is likely to continue. The companies have surplus cash and hence the rising interest rates would affect them in a small way. Hence, strong free cash flow generation, high return on capital employed (RoCE) and a robust growth outlook, the sector looks attractive.

     

     

    Equitymaster requests your view! Post a comment on "FMCG majors: Not way behind!". Click here!

      
     

    More Views on News

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    P&G: Strong Core Growth (Quarterly Results Update - Detailed)

    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.

    Nestle India: Sales Traction From New Products (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.

    GSK Consumer: Price Hike Hurts Volumes (Quarterly Results Update - Detailed)

    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.

    Marico: Margin Expansion Drives Profit Growth (Quarterly Results Update - Detailed)

    Nov 28, 2016

    Marico has reported a flat topline while the bottomline has grown by 18% YoY during the quarter.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE FMCG


    Aug 21, 2017 (Close)

    S&P BSE FMCG 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS