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FMCG cos' hopes rest on good monsoon

Latha Venkatraman

Mumbai , May 3

THE FMCG industry is probably looking skywards to detect signs of the monsoon clouds. The reasons are clear.

This year's monsoon will be extremely critical for this industry, especially for industry majors like HLL. Last year's monsoon was timely and fairly widespread; yet many parts of the country remained parched. Another year of well-timed and evenly distributed monsoon will be a boon not only for the farmers and the agricultural community but also for much of the consumer goods industry.

Especially so for HLL, which is battling declining margins across all categories. HLL ended the March quarter with a more than anticipated decline in net profit as it was prompted to go in for price cuts to drive volume growth.

HLL is conscious of the issue and has put forward a 10-point agenda to rebuild margins. But the agenda, which includes global buying initiatives, technology driven cost savings, restructuring, large-scale logistics optimisation, is already under action at HLL.

Therefore, an improvement in the external climate is imperative for this FMCG major, analysts contend. According to Mr M.S. Banga, Chairman, HLL, the rural business was picking up, especially in North India. Admittedly, this pick-up is sluggish in South India. But, Mr Banga hastened to add that the rural markets were also facing a choice explosion.

``Mere availability of products at retail outlets is not going to be enough - one needs a value proposition to break the increasing clutter of products,'' said Mr Milind Sarwate, Chief Financial Officer, Marico Industries Ltd.

During the quarters when the FMCG decline was apparent, companies like Marico and Godrej Consumer Products Ltd (GCPL) were able to sustain growth.

GCPL drove its bottomline growth by 21 per cent for the year ended March 2004 primarily by achieving higher brand sales and improving operating efficiencies. In the toilet soaps segment, its sales curve was higher than that of the sector and the company believes augmenting capacity facilitated that.

However, declines in the hair colour category, in which it has a major share, is a worrying factor for GCPL. A scaling down of inventory at the distributor had led to the fall, the company said.

As for Marico, it steadfastly held on to the strategy that it would protect margins. Yet volume growth was apparent in its hair oil business. What really helped Marico going was its new product portfolio. The company attributed its growth in profits to realignment of portfolio along higher margin lines.

But analysts are concerned that Parachute, its leading brand, would not have much room for growth. ``Marico has been growing steadily but it needs a spike,'' said one analyst.

Among FMCG companies, Gillette India seems to be the bright spot. Its net profit, the highest in any quarter, rose by 141 per cent to Rs 19.68 crore. ``This is one company where competitive pressures are quite low, therefore is expected to do very well,'' said the analyst.

The surge in grooming products sales helps Gillette considerably as they account for 79 per cent of revenues and 83 per cent of profits.

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