Consumer goods: growth for those with diversified range

Fast moving consumer goods companies with a diversified portfolio performed better during the quarter ended 30 June 2014 (Q1FY15).

Their aggregate sales grew 16.5 per cent due to the price hikes to cover the increased cost of raw materials.

However, their net profit grew at slower pace at 11.65 per cent, largely due to a 181 basis points increase in the rise f raw material costs over the previous year's level. Marico was hit by high copra prices while Dabur and Bajaj Corp suffered from increase in LLP prices.

Of the 16 consumer goods firms studied here, five outperformed the sector, seven reported sales growth between 12 and 16 per cent while sales of three firms grew by sub 10 per cent. The net profit growth rate was above 11.6 per cent for 9 firms and single digit for four others. Colgate and Bajaj Corp reported decline in net profit.

Operating margins were down 10 basis points to 20.4 per cent, due to raw material inflation and higher spending on advertising. Margin pressure was higher for 9 firms including ITC, Nestle and Godrej Consumer.

ITC's margin plummeted 220 basis points due to the impact on its hotels and paperboard businesses. Nestle India's margin fell 180 basis points due to soaring milk prices.

Hindustan Unilever and Colgate reported a strong rise in operating margins.

Companies with a diversified portfolio performed better than the ones operating in single category products, says analysts at Edelweiss Research. Emami posted sales growth of a five-quarter high at 25.5 per cent and Hindustan Unilever's sales grew more than 10 per cent for the first time in the last four quarters. 

Dabur's year-on-year domestic volume grew by over 8 per cent for nine consecutive quarters and Marico's domestic business volume jumped 6.5 per cent, led by a 10-per cent volume jump in Saffola. Nestle witnessed a 9.7-per cent domestic volume growth, which was 8 quarter high led by innovations and product indigenisation.

Consumer goods sector quarterly growth rate %


Sales

Profit

OPM*

RM/sales*

Q2FY14

12.26

18.84

121

-228

Q3FY14

11.68

15.78

28

29

Q4FY14

11.61

10.91

25

33

Q1FY15

16.52

11.55

-10

183

Data source: Capitaline +
* YoY basis point change in RM/ sales and operating margin