Consumer Products companies - Building brands - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Consumer Products companies - Building brands

Jun 14, 2000

The consumer product sector is the cornerstone of the Indian economy. Growth in the sector is highly linked to the GDP growth of the country. The Indian consumer product industry is dominated by MNCs such as HLL, Colgate P&G and Indian Shaving Products.The key to success in the industry is a unique brand identity created by the companies. Brand building is very crucial for companies, as consumers are reluctant to try unknown brands. Therefore companies spend huge amount on creating a brand value through high decibel advertisement cost. The advertisement to sales ratio for some companies is continuously increasing. Consider the example of Colgate. The company’s advertisement to sales ratio increased to 17.3% of gross sales in FY00 from 8% in FY96. However the company is able to maintain its operating margins due to the cost control measures initiated by it. So it is very important for the FMCG companies to keep it operating margins high enough to sustain the increase in the adspend.

Comparative financial ratio analysis
(latest FY results)
Operating profit margin12.0%8.7%21.0%17.8%
Five year average10.4%13.6%16.1%17.1%
Net profit margin10.2%4.6%13.4%7.7%
Five year average7.8%6.8%9.4%6.3%
Advertisement to sales ratio7.1%17.3%7.8%9.1%
Five year average5.5%13.4%7.9%10.0%

Among the companies selected above, P&G Hygiene and Healthcare Ltd. (PGHH) has the highest profit margin with the advertisement to sales ratio at 7.8%. However P&G has three companies in India namely PGHH, P&G Home Products (PGHP) and P&G Distribution. The leading brands like Ariel, Head & Shoulders and Pantene are marketed under PGHP. So the promotional expenses might be diverted to the other two companies of P&G resulting in lower advertisement to sales ratio in the listed company PGHH.

The table indicates that the profit margins of HLL, PGHH and Indian Shaving have increased in the current year due to savings in raw material costs, packaging costs and reduction in the overhead costs. The companies will have to increasingly spend on brand promotion not only to maintain market share but also to sustain in the emerging scenario of removal of quantitative restrictions.

Comparative financial performance analysis
(latest FY result)
Sales (Rs m) 101,420 11,212 4,683 2,500
Growth (%)7.0%12.3%6.3%28.3%
Operating profit (Rs m)12196981857446
Growth (%)20.0%16.9%14.5%39.4%
Net profit (Rs m)10695518559194
Growth (%)27.7%13.3%29.3%10.0%

The topline growth of most of companies is narrowing down due to increasing competition. The margins in the industry are lower, so the volume growth holds the key to success in the industry. Consumer product majors fight out in the market to reach out to the masses and compete with brands in similar product categories. The purchasing decision of the consumer is influenced by the brand perception. Therefore the companies would not be able to cut down their promotional expenses if they want to grow their revenues.

Equitymaster requests your view! Post a comment on "Consumer Products companies - Building brands". Click here!


More Views on News

BAJAJ CONSUMER CARE Share Price Down by 5%; BSE FMCG Index Down 2.0% (Market Updates)

Apr 12, 2021 | Updated on Apr 12, 2021

BAJAJ CONSUMER CARE share price is trading down by 5% and its current market price is Rs 287. The BSE FMCG is down by 2.0%. The top gainers in the BSE FMCG Index are GSK CONSUMER (up 5.1%) and BRITANNIA (up 0.5%). The top losers are BAJAJ CONSUMER CARE (down 5.3%) and VENKYS (down 5.5%).

SHEELA FOAM Share Price Down by 5%; BSE FMCG Index Down 2.1% (Market Updates)

Apr 12, 2021 | Updated on Apr 12, 2021

SHEELA FOAM share price is trading down by 5% and its current market price is Rs 2,100. The BSE FMCG is down by 2.1%. The top gainers in the BSE FMCG Index are GSK CONSUMER (up 5.1%) and BRITANNIA (up 0.6%). The top losers are SHEELA FOAM (down 5.4%) and VENKYS (down 5.7%).

More Views on News

Most Popular

A Critical Update on the Market (Fast Profits Daily)

Mar 30, 2021

In this video, I'll tell you why I am recommending caution in the market at this time.

My Recent Recommendation Will Profit from the Global Supply Chain Crisis (Profit Hunter)

Mar 31, 2021

A tiny chemical company, started in the Licence Raj era, is a great example of a new wealth creating opportunity.

My Stock Trading Strategy (Fast Profits Daily)

Mar 31, 2021

In this video I'll show you exactly how I go about picking stocks for trading.

What You Need to Find Hundred Baggers (Profit Hunter)

Mar 30, 2021

100 baggers of the last decade share this common trait. Here's how to use it to nail future multibaggers.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Apr 12, 2021 (Close)