Work from Home and Company’s Profitability – FMCG Sector

On last Sunday, we have analysed the IT sector and concluded that in spite of the turmoil situation in the external world, IT sector has performed very well due to proper planning and execution of strategies by techno savvy staff. We are aware that most of the manufacturing companies have recorded the losses for the July 2020 quarter. In this Blog, we are going to analyse a manufacturing sector which has not only earned profit but also recorded the growth in profit or sales. FMCG – Fast moving consumer goods sector has enjoyed the tide of growth and profitability. Affordable prices and less time requirement for sales are the main two features of FMCG due to constant demand from the common man satisfying the daily demand needs. FMCG includes the goods which people consumes on the daily basis such as biscuits, refreshments, beauty products, personal care products etc. In simple words, the products which are featured mostly in the commercial breaks are the FMCG products.

NSE has created the “NSE FMCG Index” comprising the top performing companies listed on the same.

	In Lakhs
Company Name	Market Capitalisation	%
Hindustan Unilever Ltd.	4,97,58,412	38.57%
ITC Ltd.	2,11,05,761	16.36%
Nestle India Ltd.	1,60,53,217	12.44%
Dabur India Ltd.	79,52,671	6.16%
Britannia Industries Ltd.	64,66,072	5.01%
Godrej Consumer Products Ltd.	53,24,704	4.13%
Marico Ltd.	35,48,161	2.75%
United Spirits Ltd.	35,21,291	2.73%
Colgate Palmolive (India) Ltd.	34,07,164	2.64%
Procter & Gamble Hygiene & Health Care Ltd.	33,33,507	2.58%
United Breweries Ltd.	24,29,487	1.88%
Jubilant Foodworks Ltd.	19,41,858	1.51%
Tata Consumer Products Ltd.	18,60,886	1.44%
Varun Beverages Ltd.	15,28,462	1.18%
Emami Ltd.	7,71,463	0.60%
Total For FMCG Index	12,90,03,116	100.00%

 

The top 7 companies comprises around 85% of the market capital of the index. I am selecting HUL, ITC, NESTLE, Britannia and Marico out of 7 for further analysis due to data availability.

Reader are requested to note that one FMCG company always work in the different category having many brands under the same category as well. It is mandatory to acknowledge the various brands launched by the companies before analysing its financial figures as brands play a crucial role in the profitability of the company. I request all the readers to visit the websites of the company by clicking the given below link to understand the various brands launched. It is also observed that many times we perceive the two brands are competitors but we may discover that both are launched by the same company. This activity will also help you while selecting the best product for you.

Company Names	Product Range	Website Link
Hindustan Unilever Ltd.	Beauty & Personal Care	https://www.hul.co.in/brands/
	Foods & Refreshment
	Home care
	Water Purifier
ITC Ltd.	Foods & Refreshment	https://www.itcportal.com/brands-microsite/
	Personal Care
	Educational material
	Matches & Agarbatti
	Lifestyle
Nestle India Ltd.	Beverages	https://www.nestle.in/brands
	Breakfast Cereals
	Dairy, Chocolates
	Foods & Nutrition
Britannia Industries Ltd.	Biscuits	http://britannia.co.in/about-us/overview
	Bread
	Dairy Products
	Cakes
	Rusks
	Crème Wafers
	Croissant
Marico Ltd.	Hair Oil, Anti Hair Fall	https://marico.com/page/maricoOnlineAR/marico-brands-india.html
	Coconut Oil
	Male Grooming & Styling
	Wellness
	Skincare

 

Now, let’s analyse the financial statement of the above mentioned companies by comparing the results published on June 2019 and June 2020 for the respective financial year’s first quarter.

Total Sales Particulars Jun-19 Jun-20 Change % Hindustan Unilever Ltd. 10,225 10,572 3% ITC Ltd. 12,532 9,722 -22% Nestle India Ltd. 2,983 3,041 2% Britannia Industries Ltd. 2,677 3,384 26% Marico Ltd. 2,166 1,925 -11%

Profit After Tax Particulars Jun-19 Jun-20 Change % Hindustan Unilever Ltd. 1,795 1,897 6% ITC Ltd. 3,437 2,567 -25% Nestle India Ltd. 438 487 11% Britannia Industries Ltd. 249 543 118% Marico Ltd. 315 390 24%

 

 

 

Growth has been observed in the total sales and PAT for HUL, NESTLE and Britannia. Though Marico’s sales are decreased by 11%, 24% growth has been observed in profit after tax. ITC’s sales and PAT are growing at the negative growth rate. It is to be noted that Cigarettes and Hotel industry plays a major role in the composition of sales and PAT in case of ITC. It is concluded that FMCG sector is earning profits in the line of the previous year. It is also significant to understand the expenditure composition during the same period of time to have the complete view.

Major expenses and their ratio to total expenses

HUL Particulars Jun '20 Jun '19   Raw material 62% 60%   Employees Cost 7% 6%   Depreciation 3% 3%   Other Expenses 27% 30%   Finance cost 0% 0%   Total Expenses 100% 100%	Nestle India Particulars Jun '20 Jun '19 Raw material 55% 52% Employees Cost 15% 13% Depreciation 4% 3% Other Expenses 25% 31% Finance cost 2% 1% Total Expenses 100% 100%
Britannia Particulars Jun '20 Jun '19 Raw material 71.86% 68.17% Employees Cost 4.93% 5.11% Depreciation 1.73% 1.90% Other Expenses 20.56% 24.40% Finance cost 0.92% 0.43% Total Expenses 100.00% 100.00%	Marico Particulars Jun '20 Jun '19 Raw material 66% 65% Employees Cost 9% 7% Depreciation 2% 2% Other Expenses 23% 25% Finance cost 1% 1% Total Expenses 100% 100%

Negligible changes can be observed in the cost structure of the company except in case of other expenses. Evident savings can be seen in the other expenses resulting into the increase in the profitability of the company. Overall it can be said that due to massive demand in the last quarter 1^st quarter of financial year 2020 is better than that of 2019.

It will be fruitful to look at the momentum in the movement in the share prices of the companies in the FMCG sector.

At the end of March 2020, share price of every company has observed the sharp decline resulting in same drop in the IT index. High growth in the share prices of the companies is recorded after disclosure of the quarterly positive result for June 2020.

(If you are good at “Marathi, regional language of Maharashtra, you can read the same blog in the Marathi by clicking below link)

https://managingrupaya.blogspot.com/2020/08/workfromhomeFMCG.html