Fast-moving consumer goods show slow growth

Analysts believe industry will take two more years to rebound.

KARACHI: The first half of 2013 was marked with a general slowdown for the major consumer goods companies listed on the Karachi Stock Exchange (KSE) – an indication of a general slowdown across the fast moving consumer goods (FMCG) sector. With no real growth in income from either rural or urban areas, analysts say the growth in the FMCG sector will take a while to pick up pace.

Revenues of major FMCG companies listed on the KSE witnessed subdued growth in the first half of the 2013. Engro Foods, one of the country’s largest FMCG companies, saw its revenues decline 4% year-on-year in the first half of 2013. Nestle Pakistan – the Pakistani subsidiary of the world’s largest foods and consumer goods company – saw its revenues grow a meagre 3% in the period under review.



Unilever Pakistan, the Anglo-Dutch foods and consumer goods giant, was better in terms of revenue growth, which clocked in at 8.3% YoY, but the recently delisted company termed the six-month period of 2013 to be a challenging one with the prevailing energy crisis, adverse security environment, market closures and dampened consumer demand.

“If one looks at the results of the FMCG sector for the first half of 2013, the profits of most companies were driven mainly by high-margin products (core margins) and not revenues,” AKD Securities Deputy Head of Research Ayub Ansari said. “Generally, there has been a slowdown in demand,” Ansari added.

Explaining this, Ansari said the agriculture income and remittances were driving the growth in the FMCG sector during the past five years. “Remittances in the first half have remained flat while agriculture income has decreased,” he said. There has been some increase in crops prices, he said, but input cost – fertiliser, oil and electricity for example – has gone up, reducing agriculture income.



In addition to a general slowdown in the sector’s growth, companies like Nestle Pakistan and Engro Foods had problems with their distribution networks, Elixir Securities Head of Research Azfar Naseem said while responding to a question – another factor behind subdued revenue growth.

Naseem, however, also attributed the general slowdown mainly to the agriculture income, which did not increase on a real basis.

“There was semi-urbanisation in rural areas for the past five years on the back of higher agriculture income but that process is saturating now,” Naseem said. Explaining, he said that although there has been nominal growth in rural sector’s income but there is no real growth. The prices of wheat and cotton, two major crops that drive agriculture income, have been stagnant, he said.

Additionally, he said, there was a decline of about 5% in the international commodity prices during the first five months of 2013, which also affected agriculture income.

Naseem further went on to say that it will take a couple of years for urban income to revive. There is no development in urban areas as such, the banks and other firms are not hiring either, he said. So the urban income is also not growing on a real basis, he said.

“Although there is no data available on the real income growth, but it is safe to say that consumer income didn’t grow on real basis during the period,” Naseem said.

Published in The Express Tribune, September 12^th,  2013.

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