FMCG: 1QFY07 review - 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?  

FMCG: 1QFY07 review

Aug 18, 2006

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-06June-07Change
Net sales65,390 75,725 15.8%
Expenditure51,214 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%
Interest115 91 -20.9%
Depreciation 1,397 1,492 6.8%
Profit before tax14,425 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

ITC's First-Ever Analyst Meet Disappoints Investors: No Concrete Plan for Demerger (Views On News)

Dec 16, 2021

Key takeaways for investors from much awaited ITC's analyst meet.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

RUCHI SOYA INDUSTRIES 2020-21 Annual Report Analysis (Annual Result Update)

Nov 22, 2021 | Updated on Nov 22, 2021

Here's an analysis of the annual report of RUCHI SOYA INDUSTRIES for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of RUCHI SOYA INDUSTRIES. Also includes updates on the valuation of RUCHI SOYA INDUSTRIES.

MRS BECTORS FOOD 2020-21 Annual Report Analysis (Annual Result Update)

Nov 22, 2021 | Updated on Nov 22, 2021

Here's an analysis of the annual report of MRS BECTORS FOOD for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of MRS BECTORS FOOD. Also includes updates on the valuation of MRS BECTORS FOOD.

JUBILANT FOODWORKS Announces Quarterly Results (2QFY22); Net Profit Up 58.4% (Quarterly Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

For the quarter ended September 2021, JUBILANT FOODWORKS has posted a net profit of Rs 1 bn (up 58.4% YoY). Sales on the other hand came in at Rs 11 bn (up 36.7% YoY). Read on for a complete analysis of JUBILANT FOODWORKS's quarterly results.

More Views on News

Most Popular

10 Indian Companies with the Fastest Growth in Dividend Payouts... (Views On News)

Jan 10, 2022

These companies have been consistently paying higher dividends for several years.

Tata Steel vs SAIL: Which Stock is Better? (Views On News)

Jan 13, 2022

With government initiatives set to boost the steel sector, find out who has a better chance of coming out on top.

Watch Out for these 4 Indian Companies Betting Big on EV Supply Chain (Views On News)

Jan 11, 2022

The upside in supply chain players could be huge but a delay in the transition to EVs, or any policy related hiccups could end the momentum.

Tech Mahindra's CTC Acquisition: Too Expensive? (Views On News)

Jan 18, 2022

Tech Mahindra's acquisition of European IT-company fails to excite investors.

Time to Buy Energy Stocks (Fast Profits Daily)

Jan 14, 2022

Energy is a sector that looks set to take off. It's time to get in.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms