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.
Consumer Products companies - Building brands - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jun 14, 2000

    Consumer Products companies - Building brands

    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)
    HLL Colgate P&G Indian
    Operating profit margin 12.0% 8.7% 21.0% 17.8%
    Five year average 10.4% 13.6% 16.1% 17.1%
    Net profit margin 10.2% 4.6% 13.4% 7.7%
    Five year average 7.8% 6.8% 9.4% 6.3%
    Advertisement to sales ratio 7.1% 17.3% 7.8% 9.1%
    Five year average 5.5% 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)
    HLL Colgate P&G Indian
    Sales (Rs m) 101,420 11,212 4,683 2,500
    Growth (%) 7.0% 12.3% 6.3% 28.3%
    Operating profit (Rs m) 12196 981 857 446
    Growth (%) 20.0% 16.9% 14.5% 39.4%
    Net profit (Rs m) 10695 518 559 194
    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

    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?

    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


    Aug 21, 2017 (Close)