Fairval

Notes on Indian equities, sectors and economy

Archive for the ‘FMCG’ Category

Why UPA lost: HUL results tell a story

Posted by fairval on May 17, 2014

One answer for the decisive boot given to the UPA lies in FMCG leader Hindustan Unilever (HUL’s) results. See the chart below. this shows volume growth for HUL on a quarterly basis:

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Over the last 3.5 years, volume growth has dropped sharply from close to 15% to ~3% now. This despite the so-called rural growth story. 2-3 years ago, all FMCG companies were furiously looking at expanding rural distribution, given the possible positive impact of the rural employment scheme (MNREGA), and the regular 10% rise in base crop prices (MSPs) for key crops.

Somewhere along the line, it is clear the consumer – whether urban or rural – has sharply reduced consumption. If a company, which spends more than Rs 3000 crore on annual advertising, and hires the best, has to struggle for growth, one can imagine the plight of SMEs.

As this blog as written before, rampant inflation is nobody’s friend. When across the board consumers are being forced to cut corners in spending, no wonder UPA got drubbed. Sonia and her NAC can ponder this at leisure now.

 

 

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How high can adspends go? Check Colgate!

Posted by fairval on March 12, 2014

This chart was a bit of an eye opener. According to this Nirmal Bang report, in FY14, Colgate will spend as much as 19% of revenues on A&P spends.  This is the highest in more than a decade.This is also the highest A&P spend as a % of sales in any FMCG category.

Colgate has consistently outspent the number 2 – HUL – in % of sales spent on A&P. So here we have a case of where the leader has a market share 3x that of the challenger, and yet spends more in even % to sales terms, let alone absolute amounts. Wow! Clearly, the challenger has no chance in such a scenario.

This year’s spike may have been driven by P&G’s launch of Oral B in mid’13, and the rapid gains GSK’s Sensodyne has made.

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Are we in a recession?

Posted by fairval on September 18, 2013

Just what is growing in the Indian economy now? This is becoming an increasing hard question to answer. Latest data shows, even for the so called defensive sectors – FMCG and pharma – growth has pretty much stalled.

Check this: An ICICI report says:

Domestic revenues of Indian FMCG plays grew just 10.6% in Q1FY14 – the slowest in the past 16 quarters.

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Also, if you see the chart, volume growth was barely 2.5% in this quarter. Of the 10.5%, 8% is explained by price rise.

Similarly, my partner Anil Khanna sent me this AIOCD-AWACs data, which shows pharma sector grew just 1.1% in value terms in August. MAT (moving annual total) growth is 8.2%.

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(Souce: AIOCD AWACs)

In volume terms, pharma market was down 7.5% in August, suggesting an inflation factor of around 8%, similar to the FMCG inflation. I don’t have MAT volume data, but if we apply an 8% inflation to MAT data, it suggests pharma sector is flat over the last 12 months.

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Slowdown clearly visible now for FMCG sector

Posted by fairval on August 5, 2013

Q1 FY14 results seem to finally show the impact of the slowdown. For biggies like HUL, ITC, and the next 3 companies in the table below, growth is down in the dumps.

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As an average, 12% is still in double digits. Knock off inflation, real growth is perhaps 4-5%, even for FMCG sector. FMCG valuations should see some pressure going ahead

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Indian FMCG MNCs getting ripped on royalty

Posted by fairval on March 27, 2013

Royalty rates have been going up in MNCs operating in India. The table below from a Nomura report shows prevailing rates amongst sundry FMCG and other companies.

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5% of sales appears to be rather high for FMCG companies which certainly don’t spend nowhere near that in R&D. Here I am assuming royalty is more to do with paying up for global parent’s R&D support. Can’t be for branding, since local cos anyway spend more than 10% of revenue on advertising. Can’t see how a Colgate India benefits from a Colgate ad in the US.

R&D spends in FMCG appear to be low. Indian companies like Marico and Dabur spend less than 0.5% on R&D.This could be lower than what global cos spend.

Unilever Plc spends Euro 1bn annually on R&D, or about 2% of sales. Further, its local sub HUL spent 0.7% on its India P&L on R&D in FY12. So how much of global R&D in Unilever is happening for India hard to say, since the India ops is anyway spending on this account. Also, cost of doing R&D in India is low, so 0.7% in India is perhaps equal to 2% abroad. Further, the Indian arm could well be doing some work from which the parent benefits.

Colgate Palmolive spent $259mn on R&D in 2012 on revenue of $17bn, or about 1.5%. In India, it spend 0.22%. The global parent is charging the Indian arm 5.2% as royalty, which clearly appears to be excessive then.

Maruti Suzuki spends 1% of its India revenue on R&D, and is charging Indian arm 5%. In auto industry, R&D spends are far higher compared to FMCG. Suzuki Motor Corp spent Y109bn on R&D in FY12, on global revenue of Y2512bn, or about 4.3% of sales. Dailmer AG spent Euro 4.8bn on R&D in 2012, or about 6.7% of its revenue.

So high royalties are understandable in auto, cetainly not in FMCG. Bosch could charge a lot more than it charging. Bosch India spent 1.4% on R&D, and paid 1% royalty. The global parent could well be spending more than 10% on R&D, Bosch is reportedly most R&D focussed automotive company in the world.

Posted in Auto, FMCG, Trends | Tagged: , , , , , , | 1 Comment »

FMCG demand hits the speedbreaker?

Posted by fairval on August 13, 2012

The FMCG consumption story – the one saving grace for the markets over the last 18-24 months, seems to be hitting a road block. High inflation, and perhaps monsoon fears, seem to be slowing down consumption according to AC Nielsen data.

FMCG company results though were fairly robust, and not as dismal as this data suggests. Maybe it will show up in Q2. This data also shows that slowdown is higher in rural India. So time for Sonia Gandhi to unleash more giveaways like Food Security..?

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FMCG sector growth..

Posted by fairval on January 28, 2012

FMCG Sector Growth

Interesting chart. Suggests the FMCG sector is not so acyclical as the general perception is. Value growth above 10% is not a given.

 

 

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