One Week Of Lockdown Was Enough To Contract FMCG Sales In March Quarter

Though categorised as essentials, the first week of the nationwide lockdown to contain Covid-19 at the end of March was enough to cause a contraction for consumer goods makers.

Sales and revenue of the makers of soaps to staples declined in the quarter ended March as Prime Minister Narendra Modi announced a complete shutdown starting March 25. Even operating margin narrowed during January-March.

Here’s a look at how FMCG companies performed in the fourth quarter.

Revenue

India’s eight largest consumer goods makers by market of Rs 35,000 crore saw revenue decline 5.35% on an average over the year-ago period, according to data from Motilal Oswal. The revenue growth had been slowing for five straight quarters as India grappled with a prolonged slowdown before turning negative because of the new cornavirus crisis.

Nestle India Ltd. and Britannia Industries Ltd. were the only companies to report higher sales for the quarter. ITC Ltd., though yet to announce its fourth-quarter earnings, is expected to report a contraction.

Volumes

Hindustan Unilever Ltd. and Dabur India Ltd. said in their post-earnings calls that growth was muted in January and February, especially in rural India, with volumes declining sharply in March as a result of the lockdown.

Categories that witnessed a slide include personal care, home care and foods and refreshments. Among the companies that report volumes in these categories, Dabur and Godrej Consumer Products Ltd. witnessed the steepest decline.

Margins

Operating margin of most FMCG companies contracted in the fourth quarter. Gross margin, however, remained stable even as prices of raw materials like wheat and dairy products rose. That was partially offset by cheaper crude-linked inputs as oil prices fell over the past few months.

Recovery

The companies resumed operations gradually in May and June. HUL, Marico, Nestle India and Britannia have reported increased capacity utilisation even as employees start returning to the manufacturing facilities.

Improvement in demand, however, may take a little longer, according to brokerages. Rural demand recovery is contingent on factors like direct benefit transfers, good rabi crop harvest and a normal monsoon for the upcoming kharif season, Axis Capital said in a report.

Investec estimates low single-digit growth over 12-18 months for the food category, but expects the pace to increase from 4-5% to 6% for the personal care segment.