Delayed monsoon could change the weather for FMCG stocks: Analysts

25 Listed FMCG companies have not so far been affected by delayed monsoon. On the contrary, some of the players have seen summer sales of their seasonal products zoom. However, FMCG analysts and the marketers feel that poor rainfall may cause sales slippage in the rural turf going forward.

Analysts and companies themselves have not begun factoring in the weak monsoon in the fundamentals. According to Enam, on the back of recent strong earnings momentum, FMCG stocks’ valuations are attractive from historical perspective, but delayed monsoon is a worry. It noted that the defensive premium has eroded. The FMCG companies were sensitive to monsoons for both input (vegetable oil) costs and rural demand. Compared with last year, when early rains and a hiatus thereafter, caused a burnout of sown seeds in many areas, this year sowing activity has largely been delayed. The brokerage said the current delay was not reason enough to panic.

Summer sales

Mr Aditya Agarwal, Director of Emami, told Business Line that the summer sales of certain typical seasonal products in rural areas have gone up significantly – 30-80 per cent. However, he was mindful of the problems of overall rural sales growth going forward if the deficient rain situation continues for long.

According to research organisation MART, rural sector accounts for 46 per cent of all soft drinks, 59 per cent of cigarettes and 11 per cent lipstick sales. Around 30 per cent of the rural population currently uses shampoos compared with 13 per cent in 2000.

A C Nielsen’s retail sales audit figures for pre-monsoon April-May indicate 16 per cent YoY growth, lower than 19 per cent in FY09 YoY. According to ICICI Securities, sales growth was driven more by volume growth rather than price growth and all did not fare the same way. For HUL, a strong player in the rural market, sales grew 9.6 per cent. HUL lost significant market share in toilet soaps, toothpastes, skin care, detergent cakes and shampoos.

According to Edelweiss, had it not been for previous price hikes and commodity covers by the FMCG players in the recent quarters, rebound in prices of palm oil, HDPE and sugar could have put pressure on their gross margins. Sales momentum “is likely to be better in 1HFY10 on the back of right pricing” by HUL and followed by others.

The price actions in the FMCG counters, which have prominent rural links, still do not suggest a sharp decline. But the weekly growth has slowed down, analysts admit.