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FMCG: Much to look forward to

Nov 8, 2000

In the quarter ended September 2000, the fast moving consumer goods (FMCG) sector gave signs of slowing down. The consolidated numbers of the top 10 FMCG companies in India, saw a staid 5% growth in turnover. The sample includes Britannia, Colgate, Cadbury, Hindustan Lever, Indian Shaving, Nestle, P&G Hygiene, Reckitt, Smithkline Consumer and Tata Tea.

(Rs m) QSep00 QSep01 Change
Sales 43,539 45,714 5.0%
Other Income 1,116 1,256 12.6%
Expenditure 37,455 39,000 4.1%
Operating Profit (EBDIT) 6,083 6,714 10.4%
Operating Profit Margin (%) 14.0% 14.7%  
Interest 180 187 4.0%
Depreciation 467 767 64.1%
Profit before Tax 6,294 7,079 12.5%
Tax 1,689 1,792 6.1%
Profit after Tax/(Loss) 4,605 5,288 14.8%
Net profit margin (%) 10.6% 11.6%  
No. of Shares (eoy) (m) 675.8 675.8  
Earnings per share* (Rs) 27.3 31.3  
Market cap to sales ratio (X)   3.1  

If we were to remove HLL's results from the sample, the turnover growth would reflect an 11% growth. This is not suprising as this FMCG giant, which contributes almost 56% to the sample's turnover, saw a poor 0.4% growth in turnover during the quarter.

A slowdown in demand from the rural areas, as a result of bad monsoons in some states was largely responsible for the staid growth in turnover.

The consolidated net profit of these companies was up by 15% to Rs 5.3 bn. Notwithstanding the sluggish growth in turnover, the sector sample saw operating margins improve by 70 basis points to 14.7%. The debt servicing costs were up marginally, indicating that the FMCG sector is looking to prune its debt burden.

The depreciation costs on the other hand, surged 64%. This indicates that these companies are making new investments, underlining their confidence in the sector's future growth potential. Consequent to these results, the sample has managed to increase its EPS to Rs 31.3.

The sector is valued at a P/e multiple of 27 times its annualised September quarter earnings. The sample's market cap to sales ratio works out to be 3.1 times, which is more or less in sync with historical valuations (as on March 2000).

On the whole, it was a reasonable performance from this sector. Future growth prospects depend largely on demand from the rural segment. Further, India's GDP has shown signs of improvement, even in adverse conditions like the crude oil concerns. We believe that the sector has much to look forward to, in the near and the long term.

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