Fast moving consumer goods (FMCG) companies in the business of personal care and food products reported strong sales growth, while cigarette firms, which have diversified into agro and FMCG products, had modest sales growth in the second quarter. However, the net profit growth for food products and personal care firms was around 15 per cent, while for cigarette firms it was around 5 per cent.

Operating margins for all the three categories declined by 150-300 basis points as many companies could not pass on the higher raw material cost to consumers due to price competitions. Most FMCG companies could not be benefited from easing commodity prices as these firms had high raw material inventory levels.

Analysts expect sales growth momentum to continue due to an expected demand growth from rural consumers. Rural income and sentiment are on an uptick due to food price inflation, farm loan waiver, satisfactory monsoon and employment generation schemes. Rural consumers account for 50 per cent of FMCG consumption. Correction in commodity prices and ad rates is likely to boost margins in the fourth quarter. Analysts expect soap and detergent players, in particular, and all FMCG players, in general, to benefit from the correction in crude oil prices.

FMCG analysts at Motilal Oswal research have lowered volume growth estimates in some product categories such as toilet soaps, detergents and paints due to reduction in consumer demand. The slowdown in construction activity would impact paints demand growth. The decline in prices of key inputs such as palm oil, LAB and packaging have come down from their highs.
 

According to FMCG analysts at Edelweiss Securities, Hindustan Unilever (HUL) and Godrej Consumer Products (GCPL) are likely to be the biggest beneficiaries of the meltdown in commodity prices. For HUL, soap and detergents account for 44 per cent of net sales, while for GCPL, soaps account for 60 per cent of its standalone sales. Falling palm oil, LAB and crude oil prices augur well for all FMCG companies as these are key inputs for making soaps, detergents and packaging materials respectively.