Turn­around in FMCG May Take A Few More Quar­ters

The Economic Times - - Markets + Finance -

raw-ma­te­rial costs. The com­pa­nies strove to cush­ion the im­pact on mar­gins by cal­i­brat­ing their ex­pen­di­ture on ad­ver­tis­ing — ad spends equalled 5.1% of to­tal rev­enue in the quar­ter, the low­est in four quar­ters.

Dabur, Asian Paints, Marico, Jyothy Lab­o­ra­to­ries and Glax­oSmithK­line Con­sumer Health­care out­per­formed the sec­tor, while com­pa­nies like Hindustan Unilever, Nes­tle, Col­gate Pal­mo­live and Go­drej Con­sumer Prod­ucts un­der­per­formed. Poor vol­ume growth due to slower con­sumer de­mand hurt most of them. The out­per­form­ers ben­e­fited from fac­tors rang-

Pos­si­bil­ity of be­low nor­mal mon­soon poses a risk to the sec­tor

ing from a low base to changes in prod­uct mix and uptick in de­mand in cer­tain cat­e­gories. An­a­lysts don’t ex­pect the sit­u­a­tion to im­prove for three­four quar­ters more. Ac­cord­ing to a re­port from Stan­dard Char­tered Se­cu­ri­ties, de­mand for sta­ples is un­likely to re­cover be­fore FY16, as it lags GDP growth re­vival by three-four quar­ters. The pos­si­bil­ity of be­low nor­mal mon­soon poses a risk to the sec­tor as it could hurt agri­cul­tural pro­duc­tion and in­crease in­put costs. Lower farm pro­duc­tion will also de­press ru­ral in­comes. The stunted growth in vol­umes has left limited room for price in­creases. These fac­tors, be­sides high val­u­a­tions, make the sec­tor unattrac­tive for in­vest­ment in the near term.

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