Slowdown blues for FMCG companies
Sapna Agarwal / Mumbai January 22, 2009, 0:45 IST
Fast moving consumer goods companies may have a solid reason to feel worried: Sales volumes of soaps, detergent cakes and washing powder are dipping fast.
Two of these categories — detergent cakes and washing powder — account for around 15 per cent of the overall FMCG market of Rs 80,000 crore, according to estimates made by analysts.
Leading market research firm A C Nielsen’s data for November 2008 show an across-the-category drop in sales volumes compared to the preceding month. Compared to November last year also, sales have either declined or grew only marginally. For example, urban consumers have reduced their consumption of detergent cakes by 2.5 per cent in November this year compared to the year-ago period. Washing powder, however, is the worst-hit category, with sales volumes declining in both rural and urban areas. At an all-India level, the overall decline is 2.9 per cent.
Analysts are concerned. Nikhil Vora, managing director of brokerage firm SSKI Securities said besides being indicative of a slackening pace of growth, the slowdown in volumes could be due to price increases effected by FMCG companies during the year.
Consumers have also reacted adversely to the common practice of FMCG companies to reduce the per unit grammage (net weight) of products while trying to maintain popular price points.
Amita Shetye, director, Client Service, The Nielsen Company, said the slowdown is more acute in mass categories. "The premium segment has registered volume growth over last year for all the three categories despite price increases. However the grammage decline in the mass category has not gone down well with consumers.
CONSUMPTION IN VOLUMES OF SOAPS, DETERGENTS & WASHING POWDERS

Y-o-Y growth (%)
M-o-M growth (%)
Nov ’07 overNov ’06
Nov ’08 overNov ’07
Nov ’08 overOct ’08
TOILET SOAPS
All India (U+R)
1.8
1.0
-6.6
All India - Urban
2.6
4.0
-7.1
All India - Rural
1.0
-2.2
-6.1
WASHING POWDERS
All India (U+R)
-0.1
-2.9
-2.4
All India - Urban
0.9
-3.9
-2.0
All India - Rural
-1.0
-2.0
-2.7
DETERGENT CAKES
All India (U+R)
4.5
0.1
-5.6
All India - Urban
3.8
-2.5
-8.0
Source: AC Nielsen
All popular mass-category brands such as Lifebuoy, Lux, Godrej No.1 and Cinthol saw reduction in sales volumes in November compared to the preceding month. Hindustan Unilever's (HUL's) Lifebuoy and Lux, which have close to 20 per cent and 15 per cent market share in the toilet soap market, recorded a sales volume decline of 7 and 9 per cent each respectively. Similarly, Godrej Consumer Products (GCPL's) Godrej No 1 and Cinthol registered a month-on-month drop of 7 and 6 per cent respectively.
"The declining volumes in these key categories are a cause for concern," says Anand Shah, FMCG sector analyst with Angel Broking. "Companies are obviously worried and I won’t be surprised if FMCG companies start cutting prices now," he said. Earlier this month HUL had reduced the price of Lifebuoy by Re 1. India's largest FMCG player also reduced the prices of some of its detergents and soap brands in the mass segment. According to market sources, Marico and other FMCG players are also planning to either reduce prices or increase the net weight of their products.
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ITC: FMCG's a drag
Shobhana Subramanian / Mumbai January 20, 2009, 0:28 IST
The stock could get derated if FMCG losses continue to pile up.
ITC’s FMCG business continues to pull down its profits and a break even point for this segment could be quite some time away. The disappointing 11.5 per cent growth in FMCG revenues in the December 2008 quarter — way below the 30 per cent seen in the first half of the year — indicates that the cigarette major is finding it hard to take away share from incumbents in the personal care and snack foods spaces.
What’s more high marketing and brand-building spends are pushing up losses — up 95 per cent to Rs 127 crore in the December 2008 quarter.
These losses, together with a worse than expected fall in profits of 34 per cent from the hotels division, left the company with a net profit growth of just 8.6 per cent at Rs 903 crore. That’s despite the cigarettes business beating both price increases, and a ban on smoking in public places, to turn in a decent 11 per cent growth in the top line and 18 per cent at the segment profits level. Cigarette volumes however fell slightly. Nevertheless, the the net profit growth was better than the 3.5 per cent posted in the first half of 2008-09, which is why the stock slipped just about a per cent on Monday. Also, thanks to some checks on costs, the operating profit margin came in slightly higher at around 36 per cent y-o-y. In the September 2008 quarter, the opm had slipped 240 basis points.
The hotels business is unlikely to pick up soon and the personal care and snacks food ventures could see bigger losses before they turn around. As such, the Rs 13,947 crore ITC is likely to end 2008-09 with revenues higher by about 14 -15 per cent and a single-digit increase in the earning per share (eps) just short of Rs 9.
Analysts point out that with nearly 80 per cent of capital employed in hotels, paper, the loss-making FMCG, and the non- value adding agri-trading businesses, the stock does not deserve a valuation of 17 times estimated 2009-10 earnings.