FMCGs on fast track; set to grow 5-10% in 6 months

According to Marico Industries chairman and managing director Harsh C. Mariwala: “The feel-good factor in the economy is now spreading to the FMCG industry. On the softer side, the monsoon has been quite good and appears even better on the background of last year’s drought.”

Concurring on the view, Ashok Chhabra, executive director, Procter & Gamble India, said: “We expect this year’s better-than-expected monsoons to boost the economy as a robust harvest should push up rural incomes and drive demand for FMCG.”

Growth in all segments of the Rs 80,000-crore FMCG industry is expected to accelerate, along with a considerable improvement in consumer spending, especially in rural India. Segments like soaps, toothpaste and other personal care products, along with beverages, are expected to perform well.

Industry analysts, however, differ about the exact time when the positive outcome will be visible in the FMCG sector. Analysts said FMCG behemoth Hindustan Lever is expected to post a topline growth in excess of five per cent for the September quarter over the same quarter last year. The company had reported a topline growth of 3.02 per cent to Rs 2,693.42 crore in the June quarter. However, a clear picture of the company’s performance would emerge in the December quarter.

However, Tridib Pathak, equity fund manager at Principal Mutual Fund, felt that the results of the good monsoon will be visible only in the next financial year. SBI MF equity fund manager Sandip Sabharwal said that an upturn is expected in the December quarter, adding that things have started to look up in the last three months as is evident from a rise in stock prices.

Godrej — who felt that the group’s FMCG businesses are likely to grow faster than the industry rate — said he expected the feel-good factor to continue for at least two more years.

“One can expect the industry to post a growth rate in high single digit percentages (5-10 per cent) and there could be a few companies which would post a growth in excess of 10 per cent,” said Mariwala. He, however, said: “On the hard factual side, results of FMCG companies for Q1 of FY 04 have been good and have appeared even better in comparison with the relatively poor show during FY Q1 2003. However, one has to be cautiously optimistic—should not conclude so soon that the feel-good factor is here to stay.”

While positive impact of the monsoon and revival in industrial activity are factors in favour of continuance of the feel-good scenario, there are issues like political stability, the impending elections, roadblocks for the economic reforms process, and Indo-Pak relations which could have a negative impact, if things do not go well on these fronts. “One wonders whether the transformation from the earlier feel-bad factor to the current feel-good factor has been far too rapid and would, therefore, have to pass a sanity check from time-to-time. On the whole, macro-economic factors will decide whether the feel-good factor is here to stay, but chances are that it is here to stay,” opined Mariwala.

With the sector finally looking up, the industry needs to capitalise on the feel-good factor to build stronger relationships with the consumer through continued provision of enhanced value. Product innovations, and not short-term gimmicks should be used as devices to improve bottomlines.