Poor rains begin to impact FMCG sales

MUMBAI: The good run delivered by the fast-moving consumer goods (FMCG) sector in the last six months has slowed down from high double-digit


levels to 12.7% in July 2009.

Industry analysts believe this could be an early indication of a weak monsoon with most FMCG companies showing a month-on-month decline in growth. "We need to watch out for sales growth trends in coming months to confirm the impact," said Anuj Bansal, research analyst, DSP Merrill Lynch (India), in a report.

While companies like Procter & Gamble (14.2%), Tata Tea (22.2%) and Godrej Consumer Products (16.8%) registered double-digit growth in July, others like Marico (8.9%) and Hindustan Unilever (6.9%) reported single-digit growths, as per ACNielsen.

HULs sales growth has slowed down from 13% last year to 7%, leading analysts to believe that initiatives taken by the company to improve numbers are yet to deliver. In a bid to return to a growth path, HUL had raised grammage on certain product packs and reduced prices on some others. Its sales growth declined for the fourth straight month in July. In May 2009, the maker of Surf Excel detergents and Lux soaps, had reported a growth of 9%. Considering that HUL draws nearly 45% of sales from rural markets, monsoon factor may have had a hand in slowing down its growth.

Its volume growth remained negative in soaps, laundry, toothpaste, tea and coffee, while its fastest growing categories like skincare, laundry, shampoo, reported single-digit growths in July.

Godrej did not match these price hikes and gained from the price differential created by this, said Bansal. The decline in sales growth of another FMCG multinational, Nestle, too continued with the figures of 12.2% for July.

Colgates growth remained stable at 10% in July, as also Daburs. While the oral care leader further strengthened its toothpaste market share from 49.2% in March to 50%, Dabur too gained share in toothpaste 9.7% to 10% and shampoos 5.7% to 6.5%.

Hindustan Unilever maintains sales even as drought trims incomes

HUL benefits from faster growth in rural markets, where per capita consumption of its goods, including Lipton tea, Sunsilk shampoo and Sunlight laundry soap, is about a third of urban levels
Singapore: The world’s second largest consumer goods maker, Unilever Plc/NV, said it’s maintained sales at its Indian unit even as the country’s weakest monsoon season in seven years depresses rural incomes.
“If the monsoon season ends with less rain there could be some slowdown in terms of growth,” Harish Manwani, head of Unilever’s emerging markets division and chairman of Hindustan Unilever Ltd (HUL), said in an interview in Singapore on Wednesday.
“Thus far, we’re not seeing the impact,” Manwani added, as the government provides some employment for poor families.
While the monsoon has revived, the dry spell has already cut farm output, eroding incomes and curbing consumption of the 742 million people in villages.
HUL benefits from faster growth in rural markets, where per capita consumption of its goods, including Lipton tea, Sunsilk shampoo and Sunlight laundry soap, is about a third of urban levels.
Less monsoon rains would impact consumption because the rural economy is largely agriculture dominated, said Abhijeet Kundu, an analyst at Mumbai-based Antique Stock Broking Ltd, who recommends buying the shares.
Unilever owns about 52% of HUL, whose shares ended flat at Rs266.95 in Mumbai trading on Thursday. The stock has gained 6.7% this year, making it the worst performer on the Bombay Stock Exchange’s Sensex index, which has surged 60%.
Rains in the monsoon season that began on 1 June had narrowed to 23% below the 50-year average as of 1 August from a high of 54% on 24 June, according to the India Meteorological Department.
Rainfall last month was 27% below average and the government had declared drought or drought-like conditions in almost half the country.
The government has stepped up spending and boosted wages under the National Rural Employment Guarantee Scheme. That’s helped gross domestic product expand 6.1% in the three months ended June from a year earlier, the first time economic growth has accelerated since 2007.
Sales rose 7.8% in the three months to June, HUL said on 27 July. Still, profit at India’s biggest household products maker slipped 2.7% amid higher advertising costs and lower income from financial investments and the sale of properties.
HUL has boosted expenditure on advertisements during the India Premier League cricket tournament held in South Africa in April and May. It intends to continue making competitive levels of investment to shore up growth, Manwani said. “We will spend what it takes to be competitive.”

Recession helps consumer goods firms: Unilever CEO

Paul Polman says money is freed up from big-ticket spending; dismisses competition from organized retail
Mumbai: Paul Polman is unlikely to ever forget his first visit to India as group chief executive officer of Unilever Plc. About four months ago, on 26/11, Polman and the top brass of Unilever and Hindustan Unilever Ltd (HUL) were at the Taj Mahal hotel in Mumbai, when their dinner meeting was rudely interrupted by terrorists.
Unfinished business: Unilever Group chief executive officer Paul Polman. Abhijit Bhatlekar / Mint
Back for a second visit, Polman told reporters on Friday at Lever House, the headquarters of the consumer goods firm’s Indian subsidiary, that his primary reason to revisit the city was to “finish a meal”.
“It was absolutely important to meet the heroes at the Taj Mahal and express our gratitude,” he said more seriously.
Polman’s two-day visit packed a schedule that included visits to a cancer hospital, a few shopping malls and meeting consumers from “different economic classes”. Polman addressed the media, flanked by Harish Manwani, president (Asia Africa) and a member of the Unilever board, and Nitin Paranjpe, CEO of HUL. The press briefing was followed by a town hall meeting with HUL employees.
Polman said the recession could help firms such as Unilever. “Consumers postpone buying cars, televisions and that frees up a lot of money to spend on everyday needs. We don’t see personal care or food markets go down substantially,” said Polman, the only lateral hire for the top job in Unilever in many years. Before joining Unilever, Polman spent 26 years at arch rival Procter and Gamble (P&G) and two years in Nestle SA.
“We are fortunate, that India, Indonesia and South Africa are growing at 5-6%,” he said, adding that when he set a target on how HUL could double its turnover, the company’s executives had appeared unfazed. “Obviously the population helps,” he quipped. “We are in an industry that drives the economy. We put a little bit of powder in a box and a little bit of liquid in a bottle and we sell it to improve the lives of people a little bit more.”
Unilever is also getting nimbler as it launches products simultaneously in several markets. For instance, its deodorant Axe Chocolate was launched in 52 countries simultaneously.
But the company’s foods business has been a laggard in India. It accounts for roughly half of Unilever’s worldwide business, but in India, it remains a small part of HUL’s overall business. Paranjpe admitted that there is work to be done. “Food as a packaged food category is less than 5% of the total market.”
Paranjpe said the food category would be a tactical play in the short-term, and that the company was focused on getting its brands to “win the end game”.
Polman is unfazed by the recent trend of organized retailers promoting private labels to compete against the mega brands of consumer product firms. “They don’t exist as a value proposition,” said Polman, adding that while companies such as Unilever keep innovating their products, private labels are not very innovative.
Polman implied that a company such as Unilever is more focused than retailers: Unilever, he said, is present in 11 product categories unlike retailers such as Wal-Mart that dabble in at least 100,000 categories. In response to a mischievous question on whether he would borrow best practices from Unilever’s arch rival P&G, Polman, with his tongue firmly in cheek, said customer practices of Japanese car maker Toyota and supply chain principles of Fedex, the global logistics firm, may be a better choice.
Like all major corporations, Unilever, said Polman, is now focusing on cash flows. The company has also stopped issuing earnings guidance to investors and analysts. It has also appointed global procurement officers to buy inputs at the best rates from any part of the world. “We’ll save on costs and invest that money in our brands,” said Polman.

Procter & Gamble to turn key sponsor for US Olympic team

The deal announced on Tuesday comes as a big boost to the US Olympic Committee’s (USOC) efforts to attract sponsors in a recession
Cincinnati: The Procter & Gamble Co, the world’s largest advertiser, has signed on to be a major sponsor of the US Olympic Team for the upcoming winter and summer games.
The deal announced on Tuesday comes as a big boost to the US Olympic Committee’s (USOC) efforts to attract sponsors in a recession.
Financial details weren’t released, but such deals with companies of this size are usually worth at least $15 million. Cincinnati-based P&G will be a corporate partner and sponsor for the US teams at the Vancouver 2010 Winter Games and London 2012 Summer Games.
The Olympics tie-in involves 17 P&G brands, from skin care to shampoo to snacks.
“It’s a very significant announcement for us,” said Lisa Baird, USOC’s chief marketing officer. “It goes to the depth of marketing that a company like Procter & Gamble can bring to our athletes and the Olympic movement.”
The USOC recently lost General Motors and The Home Depot as sponsors and is trying to renew deals with Bank of America and AT&T. The federation had previously signed smaller deals with Ralph Lauren, Acer, Adecco and Deloitte.
Baird said more sponsorships are in the works and that the addition of P&G could help attract others.
“Obviously, Procter & Gamble is a leading marketer, and other companies look to them,” she said.
The deal includes individual athlete partnerships; digital, print and television advertising, and Team USA-logo merchandising.
P&G brands have had had smaller Olympic sponsorships before, including of US gymnasts in the Beijing Summer Games in 2008, but P&G officials said this will be their most extensive Olympics involvement.
Kirk Perry, P&G’s vice president for North America, said the company was attracted by the Olympics’ strong appeal for women, teens, 18-to-34-year-olds and other key demographic groups.

TATA TEA'S NEW ADD- "JAGO RE"

Tata Tea to change name, integrate operations

Tata Tea has also started integrating its business units and could eventually merge its wholly owned overseas subsidiaries such as Tata Tea (GB) Ltd, Tata Tea Inc. and Eight O’Clock Coffee Co. into one company
Aveek Datta


Kolkata: Having transformed itself from a plantation company to a global beverages maker aiming for a $10 billion (Rs48,700 crore) turnover in five years, Tata Tea Ltd is now going to change its name, chairman Ratan Tata said.

“Tata Tea is no longer a good description of what the company is,” he told shareholders at the company’s annual general meeting on Tuesday.

The firm is likely to unveil its new name in two-three weeks, according to vice-chairman R.K. Krishna Kumar. “The new name would reflect the sparkle of a new company—a nutrition and wellness company. The new name could even be (in) a foreign language,” Kumar said.

Tata Tea has also started integrating its business units and could eventually merge its wholly owned overseas subsidiaries such as Tata Tea (GB) Ltd, Tata Tea Inc. and Eight O’Clock Coffee Co. into one company. “It is our strategic intention to integrate our overseas businesses in which we have 100% ownership,” Kumar said.

Asked if Tata Tea was planning to merge with itself its Indian subsidiaries such as Mount Everest Mineral Water Ltd and Tata Coffee Ltd, Kumar said: “Our vision is to have one cohesive company.”

After restructuring, Tata Tea will have six profit centres—the US, Canada, South America, the UK, Russia and the Indian subcontinent. Though its registered office continues to be in Kolkata, Tata Tea’s corporate headquarters has been moved to London.

The company’s shares lost 1.31% to close at Rs933 on the Bombay Stock Exchange on Tuesday, while the bourse’s benchmark Sensex index fell 115 points, or 0.74%.

“Tata Tea is still seen by a large section of investors as a plantation company,” said Rajesh Agarwal, director, research, CD Equisearch Pvt. Ltd, a Kolkata-based broking firm. “Because of the cyclical nature of the tea business, Tata Tea’s shares still do not get the kind of valuation that a beverage or an FMCG (fast-moving consumer goods) company gets.”

Tata Tea, which had a consolidated turnover of Rs4,907 crore, or a little over $1 billion, in the fiscal year that ended on 31 March, expects sales to top $10 billion in five years, Kumar said. “The growth will not be entirely organic,” he said, adding that Tata Tea, which is “sitting on a war chest of Rs1,700-1,800 crore of liquid cash”, is tracking acquisition opportunities in the US.

FMCG cos to see robust volume growth

Fast moving consumer goods (FMCG) companies, say analysts, may register a lower year-on-year (YoY) sales growth but higher volume growth for the quarter ending June 30. The full benefits of falling commodity prices and lower input costs should also increase the gross margins of these companies, they said.

A survey by five brokerage houses — SBICap Securities, Angel Broking, ICICI Securities, Motilal Oswal and HSBC Securities — reveals that after a volatile calendar year which saw input costs rise to record levels in the first half and then fall dramatically in the second half, FMCG companies will now see the benefit, as it usually takes a quarter for falling costs to show in the results.

FAST-MOVER ADVANTAGE
FAST-MOVER ADVANTAGE
Company Net Profit Range Net Sales Range
HUL 6.2-15 2.9-8.6
ITC 14.7-23.9 3-8.7
Nestle 9.5-30.7 12.5-18.8
Dabur 8.6-29.1 18-20
Marico 20.2-37.3 13.3-16
GCPL 49.7-66.4 10-19.5
Britannia 15.3-29.7 10-18
GSK Consumer 14.4-31.7 22-27.5
(Figures in per cent) Source: Analyst reports

(Figures in per cent) Source: Analyst reports
“The FMCG universe is likely to register lower sales growth of 10.9 per cent year-on-year (y-o-y) due to muted sales growth in Hindustan Unilever (HUL) and ITC, and lower price growth for most other companies. However, volume growth is expected to be strong for most categories. Lower input costs and excise benefits will result in margin expansion and, hence, we expect operating profits for the sector to grow 21.5 per cent y-o-y,” say ICICI Securities’ analysts.
“The volume-led growth will be led by led by companies like GlaxoSmithKline Consumer Healthcare, Nestle and Dabur,” forecasts Anand Shah, FMCG sector analyst with Angel Broking, who expects the sector to record a 12 per cent net sales growth.
With most companies either effecting a direct rollback in prices (HUL, Marico) or offering various trade and consumer promotions, growth in sales will be mainly volume driven. “FMCG companies will post 8.7 per cent growth in sales, 15.2 per cent in Ebitda and 13.6 per cent in net profit. Excluding HUL, the growth would be much better at 15.4 per cent in sales, 20.2 per cent in Ebitda and 24.3 per cent in net profit,” says Pritee Panchal, FMCG sector analyst with SBICap Securities.
However, going ahead, while the makers of personal and packaged goods should benefit with no letdown in consumer demand, especially with the benefits of the National Rural Employment Gurantee Scheme and farm loan waivers causing rural demand to hold strong, weak macro-economic conditions, coupled with falling income levels, could lead to moderation in consumer spending in the ensuing quarters.
“If the monsoon is poor, it will affect consumer purchasing power. There could be a risk to revenues for the next three quarters, but this will be at least partially mitigated by social sector spending, as laid out in the Union Budget,” cautions an HSBC Securities results forecast.