Jul 4, 2002|
FMCG march quarter: A review
The consumer products sector has been in a downturn for over a year now. Going by the consolidated March quarter performance of the top 5 companies, the situation has not really improved. The top 5 companies referred to here are Hindustan Lever (HLL), Colgate, Gillette, P&G and Reckitt Benckiser.
|Operating Profit (EBDIT)
|Operating Profit Margin (%)
|Profit before Tax
|Profit after Tax
|Net profit margin (%)
|Effective tax rate (%)
|No. of Shares (eoy) (m)
|Diluted earnings per share*
During the March quarter the consolidated turnover of these companies declined by nearly 11% YoY. Competitive pressures and consumer downtrading forced companies to cut brands, rationalise costs and also offer discounts on their products. The downturn in the last couple of years has forced companies to look inwards and analyse their core competencies and strategies. Seeing the cut throat competition, most companies have more or less decided to do away with non profitable products or brands. Product rationalisation has become one effective cost control tool.
While HLL continues to chop off non core operations and brands, Colgate finally decided to focus majorly on its oral care business and give its personal products plans a quite burial for the time being. Gillette management exited manufacture of Duracell batteries in a bid to improve profitability. The companies have realised that in this era though topline growth is important, but improvement in quality of earnings is also very crucial to ensure long term viability of the business.
This focus on efficiencies continued to show results in the March quarter, as operating margins improved by 250 basis points to 15.5% during the quarter. Higher interest outgo however, meant a small 3.5% growth in profit before tax. However, a huge surge in extraordinary income (221% YoY) meant that the sector sample finished March quarter 2002 with a 17% net profit growth. Excluding this, the sample would have finished March quarter with a staid 5% growth in bottomline.
As usual HLL was the dominant contributor to the sample's numbers. The FMCG bellwether contributed a hefty 82% to topline, 88% to the operating profit and over 90% to the sample's profit before tax. The huge extraordinary income is also a gift courtesy HLL. Out of the sample only HLL and Colgate improved their operating margins, the other 3 i.e., P&G, Reckitt and Gillette faced a decline at the OPM level.
While Gillette continued to be haunted by Duracell's shadow, competitive pressures led to an 11% decline in P&G's topline and consequently affected operating margins. The discontinuation of the marketing joint venture with Piramal seemed largely responsible for Reckitt's shrinking topline in March quarter. The company reported an operating loss during the quarter.
At the current valuations, the sample sector is trading at a P/E multiple of 26x and a market cap to sales of 4.1x annualised March quarter 2002 earnings. Restructuring efforts in HLL, Gillette, Colgate, P&G and Reckitt are likely to improve the sector's performance in the coming quarters. An improvement in the economy will also help the sector tide over this difficult period.
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 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407