FMCG Sector hit hard by demonetization as per Q3 reports

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The ban on high value currency in December 2016 saw the 3.2 lakh crore FMCG Sector take a hit like never before, according to the Q3 reports released by companies in the sector.

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A whopping 4% fall was noted in the overall sales volume at Hindustan Unilever Ltd. (HUL), India’s largest FMCG Company. There was some respite in the form of an almost equivalent rise in realization, which dulled the impact on overall revenue – which fell by around 0.7% to Rs.7,706 crore. The same figure was at Rs.7,764 crore in the same period last year. The impact was also recorded in the net year-on-year sales, a drop of 1.2% that’s being not only attributed to the demonetization, but also to the stress on the firm’s operations in this quarter. Experts in the field know better than to blame all their woes on demonetization, however, as HUL has been plagued with pipeline and offtake issues in the recent past, a problem that should resolve by the first quarter of FY 2017-18.

In a recent presentation, HUL announced that EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) was down by a solid 5%, and margins were down 70 basis points. Year-on-year analysis saw the company’s total profit after tax down by 10%, recorded this year at Rs.920 crore.

Asian Paints, the largest residential and commercial paint company in India, also reported a less-than-ideal Q3. An 11.1% drop in the rate of growth this December quarter (2.8%) versus the same period last year (13.9%) was the cause for some concern, but the slowdown in consolidated net profits (which grew at a lazy 1.5% year-on-year) was the real indicator that something was off.

Consolidated net sales at Bajaj Corp also showed a downward trend of 4.8%, but the company was still able to report a net profit of 17.2% in Q3. Jyothy Laboratories, saw a slowdown in their net sales which were still in the green at 3.3%, and managed to stay abreast in terms of net profit, which grew 6.6%.

While these are just the first batch of FMCG companies to publish their Q3 results, the real effect of demonetization can be gauged more effectively when other FMCG companies like Colgate-Palmolive and ITC release their Q3 results.

International FMCG giant Procter & Gamble said in a press release last week that Q3 took a hit because of the demonetization. The company reported weak sales growth. P&G’s presence in India is led by its listed companies Gillette and P&G Hygiene and Healthcare, who are expected to release Q3 results on the 7th of February, 2017.

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