FMCG firms grow in topline, margins shrink

While input price rises and inflation have taken a toll on profitability of some FMCG companies, most are posting impressive topline growth, reports Saurabh Turakhia.

While input price rises and inflation have taken a toll on profitability of some fast-moving consumer durables (FMCG) companies, most are posting impressive topline growth.

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Soap manufacturers face margin pressure from rising vegetable oil prices, while for hair oils, escalating copra prices are the problem. Additionally, packaging costs have gone up 20 to 25 per cent in one year.

Godrej Consumer Products saw its profit after tax fall by 4 per cent from Rs 35.8 crore in the first quarter of 2007-08 to Rs 34.3 crore to the corresponding quarter this year. For Marico, profit after tax dipped marginally from 39.57 crore to Rs 38.69 crore.

On the other hand, Hindustan Unilever (HUL) saw its profit after tax grow by 13 per cent, and net sales by 21 per cent. Its foods business grew by 14 per cent and the HPC (home and personal care) business 20 per cent.

However, since the company’s sales also included an operational ‘other income’ of Rs 83 crore, profit after tax went up considerably. Discounting this, HUL’s margin too is under pressure.

Topline growth, however, has been good for most FMCG companies. Marico posted over 20 per cent topline growth, GCPL 18 per cent, HUL 21 per cent and Emami 17 per cent.

Anand Shah, a FMCG analyst with Angel Broking said, “The topline growth of Marico, GCPL and HUL has been more than we expected. All of them have seen a rise in advertising spends despite inflationary times.” He added that this way they could hold on to customers in difficult times.

GCPL’s advertising spends were Rs 66 crore for the quarter April-June 2008. Adi Godrej, chairman of Godrej Group, told Hindustan Times: “Profitability for GCPL this quarter has been affected mainly because of a 66 per cent rise in the advertising budget, and the rise in prices of vegetable oil.”

Emami has also renewed its contracts with brand ambassadors Shah Rukh Khan and Amitabh Bachchan despite pressures, while HUL’s advertising budget increased from Rs 336 crore for the April to June quarter, 2007 to Rs 438 crore for the corresponding quarter this year. Aditya Agarwal, director, Emami said that the company spends 20 per cent of its total turnover on advertising and marketing (almost Rs 120 crore) in India.

Godrej will consider price hikes of 5-6 per cent for its soap brands in the quarter June 08 to September 08. Marico has taken price increases some time back while HUL has also taken judicious price increases regularly.