
Consumption slowdown in the last three quarters affecting FMCG sector
Posted by : Avneet Dhamija | Sat Jun 25 2022

According to many research estimates, the fast-moving consumer goods (FMCG) market in India increased by 6% in the January-March quarter compared to the prior year, driven primarily by double-digit price growth.
Due to rising commodity costs and supply-demand mismatches brought on by the pandemic, inflation began to skyrocket in many economies even before the continuing conflict between Russia and Ukraine. Because of this, central banks such the U.S. Federal Reserve, the European Central Bank, and the Bank of England decided to accelerate the timetable of tightening monetary conditions in their respective nations.
The situation was made worse by the ongoing conflict between Russia and Ukraine, which led to a substantial rise in price volatility for commodities relating to agriculture, energy, and petroleum.
The IMF projects that global inflation reached its highest level in 26 years in 2022, at 7.4%. Which is to blame for the volume’s recent drop. Although the total volume degrowth was dispersed across all categories, the extent in non-food was noticeably greater than in food. Volumes in the non-food category decreased by 9.6%, and those in the foods category fell by 1.8% during the quarter. Due to the high input cost pressures and inability to pass the prices on to consumers, there was also a 5.3% increase in small manufacturers leaving the industry in the March quarter.
For instance, the FMCG company HUL recently claimed that rising pricing and shrinking packs will be necessary in the future due to the significant influence that inflation has on soap sales.
Let us analyse the performance of FMCG sector by analysing Q4 & FY22 performance of four major industry players i.e., HUL, ITC, Britannia & Dabur.
Table of Contents
ToggleCompany Profiles: All four of them are leaders in their differentiated products
HUL has a market share of more than 75% and a turnover of Rs 50,336 crores, growing at an 11% YoY rate. It is a division of the British business Unilever. Foods, drinks, cleaning supplies, toiletries, water purifiers, and other quickly used commodities are among its offerings. Hindustan Unilever Limited (HUL), the country’s leading manufacturer of fast-moving consumer goods, has a nearly 90-year history in India. It is a major player in the market and has more than 50 brands in its portfolio.
A diverse company with operations in the fast-moving consumer goods, hotels, paperboards and packaging, agribusiness, and information technology, ITC is one of the top private sector enterprises in India. With a market valuation of Rs 327,613 crores, it also dominates the Indian cigarette market.
With a 100-year history and yearly revenues of more than Rs 9,000 crore, Britannia Industries is one of India’s top food firms. Britannia is one of the most reputable food companies, producing well-known products in India as Good Day, Tiger, NutriChoice, Milk Bikis, and Marie Gold. A 38% market share is reportedly held by Britannia. The product line offered by Britannia comprises biscuits, bread cakes, rusk, and dairy items like cheese, milk, and yoghurt.
With revenues exceeding Rs 7,680 crore and a market capitalization beyond Rs 90313 crore, Dabur India Ltd. is one of India’s top FMCG companies. Dabur is currently the most reputable brand in India and the largest Ayurvedic and Natural Health Care Company in the world, drawing on a tradition of quality and experience spanning over 135 years.
Movement in share price from Jan 2022
Q4FY22: Dabur reported a YoY decline in PAT despite growth in Revenues
Over the last few months, while the indices have declined by 15%, and the stocks of FMG companies also, ITC stood against the tide and has delivered more than 20% returns from January 2022. The increases reflect good results from ITC, which showed a 9% increase in cigarette volume during the Q4FY22. A final dividend of Rs 6.25 per share has also been suggested by the board. ITC reported an 11.7% YoY increase in PAT at Rs 4,196 crore for Q4FY22, driven by growth across all categories. PAT was Rs 3,755 crore at the same time last year. Operating revenue for the company increased by 25% to Rs 16,426 crore from Rs 13,161 crore in the same period last year.
While the other three players have all achieved significant revenue growth. Revenue at HUL increased by 10% year over year, while increases at Britannia and Dabur India were 17% & 8%, respectively. Speaking about profitability, Britannia experienced a 17% YoY growth in PAT in Q4FY22, while Dabur India experienced a 3% dip.
FY22: Both ITC & HUL saw a robust increase in top & bottom lines
When comparing their performances for the entirety of FY22, all four have had significant increases in sales, but only three have experienced increases in profitability. According to analysts, fewer ad expenditures in FY21 have contributed to Britannia’s sharp YoY decline in PAT.
ITC, who experienced a 24% YoY growth in sales and a 16% YoY increase in PAT in FY22, is still the dominant player. When the success of the entire FY22 is taken into consideration, even Dabur India has seen a top and bottom-line gain of 15% and 4%, respectively.
Speaking about the HUL, it experienced satisfactory growth in both the full year and the quarterly periods in FY22. In spite of inflationary pressure, its revenue and profitability both increased by 11% in FY22. It also succeeded in growing its market share across practically all goods.
Our View
Despite the persistence of unfavourable global factors, a normal rainfall this monsoon would make this sector promising. Retail trade in this industry is still upbeat, and conventional trade store owners have maintained stock levels and assortment.
ITC cautioned that the year saw an unprecedented spike in the prices of key inputs such as food oils, packaging materials, soap noodles, petrol, logistics, etc., which caused significant pressure on margins. Persistently high inflation has emerged as a major issue globally. Therefore, the FMCG players’ performances in the next two quarters will indicate whether they are able to grown from here on. Many analysts predict that the FMCG sector would do better in the second half of FY23. The rising inflation may see some correction in the coming quarters, which will bode well for FMCG companies.
Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice
Research done by: Ketan Sonalkar, SEBI Rgn No INA000011255

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