For fast-moving consumer goods, or FMCG, companies, volume growth has been the dominant theme during the quarter to March 31. After a modest performance in the December quarter, when volumes grew rather too slowly, most companies have taken measures in the March quarter to arrest a further slowdown in volumes.
They have either slashed prices or held on to the price levels for a major portion of their portfolios. Softening of prices of key raw materials such as palm oil has enabled FMCG companies to pass on the benefits to consumers, especially in the case of soaps. Advertisement expenditure, which was at a record high in the December quarter, is likely to see a moderation in the March quarter.
Since the impact of advertising comes with a lag, companies will reap the benefit of investments in their brands in the quarters ahead. HULBSE 0.70 %, the industry bellwether, has reduced prices of soaps and detergents, one of its largest product categories. Volume growth, which slowed down to single digits in the past few quarters, is critical for the company. With consumption of discretionary categories such as foods and skin-care products being muted, the company's overall sales growth is likely to be impacted. Besides, the March quarter is a lower-sales quarter for the company traditionally. ITCBSE -0.68 % is likely to maintain strong growth in its cigarette business. Volume growth may be impacted in the short term due to price increases by the company. Losses at its FMCG business are also likely to come down.
DaburBSE -1.22 % is also expected to do well, benefiting from its restructured distribution network. Among the large FMCG companies, ITC, Dabur and Godrej Consumer ProductsBSE 1.59 % are expected to perform well, while Jyothy Labs and Emami are among the smaller companies that are likely to do well.
Given the challenging macro-economic conditions and low consumer confidence, the sector is likely to suffer some pain (in terms of lower volumes growth) in the near term.