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: 1QFY07 review - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Aug 18, 2006

    FMCG: 1QFY07 review

    In recent times, India's consumption story, favourable demographics and rising income levels have led to a good performance of the FMCG sector. In this article, we analyse the performance of the larger 5 FMCG companies, viz. HLL, ITC, Nestle, Britannia and Dabur.

    Rs (m) June-06 June-07 Change
    Net sales 65,390 75,725 15.8%
    Expenditure 51,214 59,523 16.2%
    Operating profit (EBDITA) 14,176 16,202 14.3%
    Operating profit margin (%) 21.7% 21.4%
    Other income 1,761 1,879 6.7%
    Interest 115 91 -20.9%
    Depreciation 1,397 1,492 6.8%
    Profit before tax 14,425 16,498 14.4%
    Tax 4,254 4,538 6.7%
    Profit after tax 9,967 11,925 19.6%
    Net profit margin (%) 15.2% 15.7%

    What has driven performance in 1QFY07?
    Volumes drive the topline: According to AC Nielsen, a leading market research agency, the total market for consumer goods grew by 10% QoQ during 2QCY06 (with rural markets witnessing a 14% QoQ growth and urban markets reporting an 8% QoQ growth). Across categories, volume growth was witnessed. The topline in the last quarter of the top 5 FMCG major has grown by 16% YoY with both rural and urban markets contributing to this strong growth. The launches and re-launches have assisted the good volume growth, while an increase in price realisations has resulted in improvement in margins. HLL posted a single-digit growth, while Dabur, Britannia and ITC posted strong double-digit growth. The improved standard of living, increased rural spending and rapid growth in modern retail formats are expected to keep the growth momentum intact going forward.

    Cost pressures remain high: The sector witnessed cost pressures in select product categories and segments. The impact was more pronounced on products that require crude and agri-based raw materials. The industry has already undertaken selective price increases to ward off the impact of rising input costs, which, along with strong volume growth, will enable the sector to protect its margins to a large extent.

    New product launches, brand building increase: The rising sector growth rates have enthused industry leaders to opt for greater advertising and brand building measures. New product and variant launches have witnessed the maximum acceleration recently. HLL, Nestle and Dabur have been at the forefront of launching new products and variants. The new and innovative products have increased brand differentiation and competitive advantage of leading players. FMCG companies have increased advertising costs substantially. This expense assumes importance as we observe companies entering new consumer categories and existing companies trying to protect their respective shares. New entrants and variants will increase consumer interest and expand the product category.

    Robust bottomline: The bottomline of the 5 companies grew by 19.6% YoY. This was mainly due to the lower interest cost and lower tax outgo. Almost all companies have set up units in tax havens like Himachal Pradesh, Uttaranchal and Assam, which offer them a 100% 10-year tax and 5-year excise benefit. However, with the expiry of the 5-year period the tax rate will go up.

    Going ahead...
    We expect this growth trend to sustain in the coming year on the strength of rising per capita incomes, resulting in higher discretionary income in the hands of the consumer. We, however, note that the industry continues to be impacted by severe cost pressures in crude-based materials and agri-commodities. However, strong demand and selective price increases should enable key players to boost profit growth ahead.



    Equitymaster requests your view! Post a comment on "FMCG: 1QFY07 review". Click here!


    More Views on News

    GSK Consumer: On the Recovery Path (Quarterly Results Update - Detailed)

    Jun 20, 2017

    While GSK consumer reported muted revenue growth, volumes are seen to be recovering.

    ITC: Demonetisation woes pull down business growth (Quarterly Results Update - Detailed)

    Feb 8, 2017

    ITC Ltd has announced third quarter results of the financial year 2016-2017 (3QFY17). The company has reported 4.7% YoY and 5.7% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

    ITC: A Decent Quarter Amidst Challenging Environment (Quarterly Results Update - Detailed)

    Dec 7, 2016

    ITC has announced second quarter results of the financial year 2016-2017 (2QFY17). The company has reported 8% YoY and 10.5% YoY growth in revenues and net profits respectively.

    ITC: Numbers Go Nowhere in FY16... (Quarterly Results Update - Detailed)

    Jun 8, 2016

    ITC declared results for the quarter and year ended March 2016. During the year, the company's net revenues and profits rise by 1% YoY and 3% YoY respectively.

    GSK Consumer: A Forgetful Year (Quarterly Results Update - Detailed)

    Jun 1, 2016

    GSK Consumer Healthcare announced its results for the quarter and year ended March 2016. During the quarter, sales and profit came in lower by 9% YoY and 8% YoY respectively.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    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.

    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.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    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: 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