FMCG cos log better profit margins

The 10-15% price hike undertaken by most consumer goods companies in the past two quarters has begun showing positively in their profit margins and toplines. FMCG majors such as Hindustan Unilever (HUL), GlaxoSmithKline Consumer Healthcare, Dabur India, Godrej Consumer Products and ITC have reported healthy margins and topline growth for the April-June quarter, aided to a large extent by price hikes.

Anand Shah, FMCG analyst at Angel Broking, said, “Price hikes undertaken by FMCG companies have begun reflecting in their performances. Margin expansions have been aided by buying efficiencies.” High-margin products are doing well and companies are able to protect margins.

HUL, which posted topline growth of 13% year-on-year to Rs 3,481 crore during the April-June quarter, saw its operating margin expand by 15%. Analysts attribute that to judicious price increases across categories. HUL had hiked prices of Knorr soups and certain SKUs of Surf Excel Blue, Rin Advance, Ponds, Lux and Sunsilk over the past few months. HUL’s foods business grew 25% while soaps and detergents grew 14.6% during the quarter.

“The full impact of price hikes done over the previous two quarters is showing now,” said Rajan Verma, CFO, Dabur India. Dabur posted a consolidated net profit increase of 31% in April-June quarter at Rs 62.08 crore compared to Rs 47.37 crore in the previous corresponding quarter. Its consumer care and foods divisions posted a healthy growth of 19% and 39% respectively. Dabur’s price hikes, too, were scattered ranging from honey (10%), to Anmol hair oil (5%), and baby care products (4%).

GSK, which effected a 4-5% upward revision of prices for Horlicks and Boost, posted year-on-year topline growth of 17% at Rs 316 crore, beating analyst expectations of 12% growth. Analysts say volume growth of 12% and value growth of 6% was aided by 4-5% price hikes the company undertook for Horlicks and Boost. Said Zubair Ahmed, MD, GSK, “

Growth has come partially because of the price rise which happened on account of rising milk prices, but more so because we leveraged marketing opportunities for our brands with 360 degree campaigns. Also, consumption of Horlicks and Boost is now spreading across the entire family instead of just children or the elderly.” Mr Shah said, “The Godrej’s soaps portfolio was not doing well last quarter, but this quarter, they have shown a 29% growth in soaps.

While 17-18% of this growth is accounted for by volumes, the remaining growth has happened because of higher prices.” ITC posted a topline growth of 17% in the quarter at Rs 3,325 crore, which, analysts say, is among the company’s strongest performances in the recent past. The recent price hikes helped the company to expand margins.