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FMCG Sees Robust Growth

This sector that has witnessed both top-line and bottom-line growth in an otherwise unimpressive year for the markets

The sector that defies slowdown has yet again managed to fare well despite concerns over rising food inflation impacting consumption. The sector spends heavily on advertising and marketing which has seen a steady growth. Read further for details on the concerns over off-shore acquisition by FMCG companies.

There has been a lot of talk of high food inflation affecting consumption patterns across India adversely. Well, even if that is true, at least the fast moving consumer goods (FMCG) companies in the BSE FMCG Index are not yet showing signs of being affected by a cutback in consumer spending.

Listed FMCG players are still seeing robust growth in demand. A look at the Q2 results illustrates this: Nestle India's net revenue was up 20 per cent (y-o-y); Marico saw sales rise 26 per cent; Godrej Consumer's sales were up 23 per cent; and Colgate's were up 19.11 per cent. No slowdown in demand here.

But FMCG companies are not as resilient against rising input costs. Marico saw its raw material prices jump 470 basis points in Q2; GSK Consumer saw a 300 bps increase; and HUL saw its cost of goods sold rise 340 bps. These companies may hike prices to shore up margins.

What stood out in Q2 was the increase in advertising and marketing spending by select players. Colgate upped its ad spend by 44 per cent (advertising its latest Sensitive Pro-Relief toothpaste among others); Britannia increased it by 30 per cent; and GSK Consumer by 33 per cent.

The international acquisitions undertaken by FMCG companies over the last couple of years have now come back to haunt them. GCPL, for instance, draws a third of its consolidated revenue from outside India. Marico and Dabur similarly draw a fourth of their revenue from abroad. These companies which were earlier isolated from fluctuations in the value of the rupee now stand exposed.