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FMCG Companies' Q1 Performance Subdued On Pre-GST Sales Impact: Experts

Although few FMCG players have reported decent profits, all of them have attributed the dip in sales due to transition in the run up to GST.
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HUL reported a 9.28 per cent increase in net profit at Rs 1,283 crore for the April June quarter
HUL reported a 9.28 per cent increase in net profit at Rs 1,283 crore for the April June quarter
New Delhi: Top FMCG players, including Hindustan Unilever, Dabur, Marico and Emami, would have 
performed much better in first quarter had sales not been impacted by de-stocking ahead of implementation of GST (Goods and Services Tax), according to industry experts. While HUL (Hindustan Unilever) reported a 9.28 per cent increase in net profit at Rs 1,283 crore for the first quarter, Dabur India saw its net profit dip 9.80 per cent to Rs 264.86 crore. Kolkata-based Emami Ltd posted a 98 per cent decline in net profit at Rs 1.04 crore.

Marico reported an 11.92 per cent decline in consolidated net profit to Rs 235.94 crore for the June quarter. Godrej Consumer Products Ltd reported an 8.70 per cent decline in consolidated net profit at Rs 225.17 crore for the June quarter.

The companies, in their respective financial statements, said their sales were impacted due to de-stocking by channel partners ahead of GST implementation in July.

"It was expected that companies would not come out with encouraging results as trade vacuum happened and they would have definitely performed better if the GST would not have been implemented," Godrej Group chairman Adi Godrej told news agency Press Trust of India. 

However, he said, GST is a revolutionary reform and the impact of it will normalise by the next quarter and would reflect in the Q2 and Q3 results of the companies.

Commenting on the performance of the FMCG firms in Q1, Kotak Mutual Fund senior VP and head of equity research Shibani Kurian said: "The volume and revenue growth for the FMCG companies would have been higher by around few percentage points had GST not been implemented."

Although few FMCG players have reported decent profits, all of them have attributed the dip in sales due to transition in the run up to GST.

"Most of the companies in the sector would have likely performed a shade better in terms of profitability as operating leverage in the business is high," Ms Kurian said.

Asked how long would it take for the companies for sales to pick up, Arihant Capital Markets whole-time director Anita Gandhi said: "It may take one or two quarters and when complete GST implementation takes place successfully, the industry will come back to normalcy."

Ms Kurian also said channel inventory should be back to normal during the early part of the next quarter.

She, however, said understanding the system of filing of tax credits may take some longer for the sector at large.

Dabur India's income from operations during the quarter was down 7.04 per cent at Rs 1,871.34 crore, as against Rs 2,013.23 crore in the corresponding quarter a year ago.

Marico reported a 3.73 per cent decline in income from operations at Rs 1,715.28 crore as against Rs 1,781.78 crore in the April-June quarter of 2016-17.

Emami's net sales during the period under review were at Rs 541.1 crore as against Rs 645.43 crore in the year-ago quarter - a decline of 16.16 per cent.

In Q1, HUL's net sales stood at Rs 9,094 crore as against Rs 8,662 crore in the corresponding quarter a year ago, up 4.98 per cent.

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