FMCG shrugs off economic blues, stays in profit zone

You need to brush, shower, wash your dishes and buy toothpastes, soaps and detergents on a periodic basis. So, it’s no wonder then that the fast-moving consumer goods (FMCG) sector has been able to weather the economic slowdown and even post growth and profits.

Sales numbers have been good and companies have periodically hiked prices and repackaged products.

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“In my view, the FMCG sector is an evergreen sector,” says Sonam Udasi, senior VP and head of research, IDBwI Capital Markets.

“We expect Q1FY14 results to be strong for our coverage universe with topline growth at 12.6% on the back of steady price hikes coupled with volume growth,” says Ankit Kedia of Centrum.

Operating margins are expected to expand by 50 basis points (bps) with large-cap stocks scaling up to 60-75 bps. “Profit after tax is expected to grow by 15.9% year-on-year (y-o-y),” Kedia adds.

A big challenge is whether FMCG companies can sustain pricing.

“We expect Q1FY14 revenue to be up 14% (y-o-y) on the back of 11% volume growth in the toothpaste category along with 5% price hike,” says Kedia about the prospects of Colgate Palmolive.

“Earnings performance is expected to take centre stage in Q1FY14,” says Dhanajay Sinha, co-head of institutional research at Emkay Global Financial Services.

Input costs are soft and FMCG companies would post gross margin expansions but the earnings trajectory could remain under pressure.

 

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