MxMIndia

Tag: Sensex

  • Dabur had kept its advertising cost in control over the past several months in order to maintain its profitability

    … but rejoice! Dabur increases its adspends

    By Jwalit Vyas

     

    Dabur India delivered a good performance in June 2012 quarter. The major surprise of the June quarter numbers was the year-on-year 51 per cent jump in its advertising and publicity expenses.

     

    Dabur had kept its advertising cost in control over the past several months in order to maintain its profitability. However, the strategy seems to have changed as the company again has started pumping money in marketing its products.

     

    Its advertisement to sales ratio increased by 310 bps year-on-year to 15.7 per cent in March 2012 quarter. Its sales grew by 20 per cent y-o-y to Rs1,462 crore, which its net profit grew by 17 per cent to Rs 150 crore. Operating margins remained flat at 16 per cent which is positive for the company considering the additional advertisement expense.

     

    The second most diversified Indian FMCG company showed a healthy growth across segments. Its food business which contributes to around 15 per cent of the company’s net sales grew by 31 per cent, while its consumer care business which is 80 per cent of its total sales grew at 15 per cent. Its retail business (Kaya Skin Clinic) continues to be loss making but the size of this business is negligible when compared to its overall business.

     

    Dabur’s stock closed 0.1 per cent up at Rs 118 while the Sensex was down by 1.7 per cent. The company’s stock is trading at a price to earning multiple of 31.

     

    Source: The Economic Times

    Copyright © 2012, Bennett, Coleman & Co. Ltd. All Rights Reserved

     

  • A study of the aggregate financial performance of the leading 10 FMCG companies over the past eight quarters shows that the industry has grown at an average 16-21 per cent in the past two years

    FMCGs like HUL, Dabur, Godrej, Marico on consumption-driven growth

    By A Correspondent

     

    India’s fast-moving consumer goods, or the FMCG sector, has been able to weather the impact of an economic slowdown and rising input costs yet another quarter, as firms led by HUL beat street expectations both on top line and bottom line growth.

     

    A study of the aggregate financial performance of the leading 10 FMCG companies over the past eight quarters shows that the industry has grown at an average 16-21 per cent in the past two years with average operating margins being 22 per cent.

     

    Very few other industries can boast of having such a performance track record. “The consumer sector typically is the last and the least to suffer during a slowdown,” said Manoj Menon, senior analyst at Kotak Institutional Equities.

     

    Most companies are reaping the benefits of the direct distribution expansion mostly in rural India. HUL, for instance, has tripled its rural penetration in the last couple of years. Sales from modern trade have also been a strong growth driver for companies. Marico has posted a growth of over 45 per cent in revenues from its rural and modern trade businesses during FY12.

     

    The quarter to March performance of FMCG companies like HUL, Dabur, Godrej Consumer Products, Marico, Asian Paints, GSK Consumer Healthcare, Procter & Gamble Hygiene and Healthcare and Jubilant Foodworks is also a reflection of consumption-driven growth.

     

    Half of HUL’s 20 per cent revenue growth during the March quarter was volume driven. Dabur’s domestic sales rose 19.2 per cent with volumes rising 9.5 per cent. Godrej Consumer Products logged 30 per cent sales in soaps in India – 17 per cent of which was volume-driven. Asian Paints registered 29 per cent growth in its revenues from domestic business, of which 15 per cent was volume growth.

     

    The company had raised prices by close to 12 per cent on its portfolio during the quarter. Jubilant Foodworks, owner of the Dominos Pizza franchise in India, reported 26 per cent same store growth, which was almost entirely volume-driven despite the company raising its menu prices by 10 per cent. Marico has been able to achieve a 17 per cent volume growth for the March quarter from a total revenue growth of 23 per cent for the quarter.

     

    GSK Consumer Healthcare registered 14.5 per cent increase in net sales – 7 per cent of which was driven by volume growth and the rest through higher realisations on account of price increases. Nestle was probably the only company to have a largely value-driven revenue growth of 13 per cent during the March quarter.

     

    Exceptional value growth always carries the risk of hurting volumes. Till now, most FMCG companies have been able to perform well while balancing between volume and value growth. “Over the long run, we see consumer demand being resilient,” Nitin Paranjpe, chief executive officer of HUL, had said at the press conference following the company’s results. According to Mr Paranjpe, the secular trend of consumers is towards uptrading rather than downtrading.

     

    “The demand for consumer goods is relatively inelastic compared to that of other products,” explained Milind Sarwate, group chief financial officer, Marico. An earlier ETIG analysis of the growth in revenues and profits of leading FMCG companies revealed that companies registered a much faster growth in revenues and profits during periods of high inflation (in 1994-98 and again from 2006 till date) compared with periods of low inflation (1999-2005).

     

    “During an inflationary period, there is a likely market share gain for organised players from the unorganised regional players,” Mr Menon explained. Larger firms enjoy economies of scale on account of bulk buying and higher pricing power on their reputed brands.

     

    The ET FMCG Index has a price to earnings multiple of 36 against the Sensex P/E of 16.1. Stocks of Godrej Consumer Products and Asian Paints hit a new high ahead of the companies’ result announcements. Stocks of HUL, Marico, Dabur, Glaxosmithkline Consumer Healthcare and Jubilant Foodworks are hovering near record high levels.

     

    However, their current valuations are still lower than their all-time record levels. In case the broader economy is sluggish, analysts fear that the going may not be good for the sector in the coming quarters. “Moderation is very much on the anvil,” cautioned Mr Menon. For now, FMCG companies continue to live up to their reputation of being a defensive investment play.

     

    Source: The Economic Times

    Copyright © 2012, Bennett, Coleman & Co. Ltd. All Rights Reserved