Undoubtedly, over the last two quarters some consumer companies have seen a dip in volumes, but there are exceptions. The top line of nearly 15 consumer companies, mainly consumer staples, has declined very marginally compared to FY12. Also, lower commodity prices are helping cushion the impact of slowing topline. And, if one compares the valuations of some of these high-growth companies with other Asian peers, then the valuations are in line.
Credit Suisse has analysed the performance of 15 FMCG firms to understand the trend. It appears the aggregate year-on-year revenue growth of these companies has been 15 per cent in Q4FY13. "This is a very marginal moderation over 16.5 per cent growth in the first half of FY13 and FY12," says the brokerage. This marginal decline has been largely due to slowing price hikes, as input costs have started trending downwards. There is no significant impact on volume growth for most of these 15 companies. Other than Marico and Nestle, most other FMCG companies have seen volumes accelerate. Hindustan Unilever and ITC saw volumes accelerate in Q4 compared to Q3FY13. Analysts say management commentary seems to suggest there is no major cause of concern. In Q4, ITC, Godrej Consumer Products Ltd (GCPL), Colgate, P&G and Bajaj Corp reported the strongest revenue growth, giving visibility on future earnings.
While the discretionary consumer businesses continue to struggle as no recovery is imminent in the near term, the staples are holding up. Even the laundry segment, a highly penetrated category in India, is expected to see double digit growth in FY14. JP Morgan believes consumer up-trading and higher per capita usage would enable low double-digit growth for the laundry category, at least for the branded players.
Going forward, companies that have high rural penetration and are in the process of launching innovative products, would be able to survive a slowdown in demand. Credit Suisse believes ITC, GCPL, Emami and GSK Consumer have the requisite drivers to gain marketshare in FY14 and grow ahead of the market. Analysts believe ITC's rollout of 64mm cigarettes nationally and the launch of GCPL's creme hair colour in sachets could be game-changers for the companies. Given the promise of growth these companies offer, analysts believe the valuations compare favourably with other domestic and Asian peers.