Consumption stocks buck the trend

Thu, 3 May Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

What has continued to keep India ticking despite a number of negatives on the macro front? Well, India's consumption story, especially in small towns and villages remains strong. The might of India's rural hinterland has helped consumer goods players such as Hindustan Unilever (HUL), Dabur and Godrej Consumer (GCPL) present very encouraging financial results for FY12. All these companies saw double digit profit expansion with sustained sales growth. Dabur and GCPL are now both billion dollar companies in terms of revenues, while HUL's turnover has crossed US$ 4 bn. The best part is that these companies have seen no signs of slowdown.

These FMCG majors witnessed a stellar performance even in a tough year. Their stock prices also seemed to reflect the same story. Versus a 9% YoY fall in the BSE-Sensex since the end of April 2011, the FMCG index saw a 27% rise. Both Godrej and HUL's stocks are up more than 40% since last year, while Dabur is up over 10% YoY. The managements of these companies are convinced that the growth will continue unabated. Mr. Adi Godrej of GCPL expects the company to double revenues every three years and to be 10 times the size in 10 years. Mr. Nitin Paranjpe, CEO of HUL expects robust demand to continue in FY13 on the back of consumer demand. Dabur has also seen bottom-line growth on the back of price increases and a focus on maintaining cost efficiencies.

The feather in the cap of all these companies, however, has been resilience in demand from rural India. HUL's rural growth comes in far ahead of that in urban areas. Keeping this in mind the company has trebled its rural outreach. The story is similar for other players in the consumer goods industry.asp as well. Demand in rural India is increasing for a variety of reasons, be it higher marginal support prices (MSP) for crops or government's focus on rural income levels. Companies have been able to take advantage of the increased rural cash flows by ramping up on their distribution channels in these areas. Thus they have been able to see increased volume growth. The rural story was the crowning jewel for FMCG majors in FY12. But how will this story play out in FY13 will greatly depend on whether inflation remains under control and whether we have good monsoons in 2012.