“These measures kicked in a few quarters ago,” said Abneesh Roy, senior vice-president, research (institutional equities), Edelweiss. “This has come as companies
have sought to be highly efficient in their operations, resulting in tighter control on costs, better product mix, and prudent strategy when it comes to pricing as well as advertising and sales promotion,” he said. The goods and services tax (GST) since July last year has also seen companies pass on rate cuts, aiding volume growth. But most firms have also firmly kept their eyes on margins and bottom line.
Analysts said on an average in the last three quarters gross margins of companies had expanded by 200 basis points while operating margins had increased by 300 basis points as firms have looked to drive efficiencies in every department.
G Chokkalingam, founder and managing director, Equinomics Research, said multinational consumer goods companies had also been nudged by their overseas parents in recent quarters to focus on profitability as activist investors globally mount pressure on them.
“Companies such as Unilever had indicated last year that they were accelerating their cost savings plan and targeting a 20 per cent underlying operating margin by 2020. The Indian subsidiary Hindustan Unilever (HUL) already has initiatives such as zero-based budgeting and ‘Connected 4 Growth’ in place that are helping the company deliver on cost savings,” Chokkalingam said.
In an analyst call, Proctor & Gamble’s Global Chief Executive Officer (CEO) David Taylor said the company was accelerating changes to meet market challenges and improve sales and profit growth. “We are building an organisation that owns outcomes in each market so that we can accelerate our pace of growth,” he said.
Colgate-Palmolive’s Global CEO Ian Cook echoed similar views during a recent investor call, saying the company was pushing strong “productivity-led savings and initiatives” despite growing input cost pressures.
Domestic majors such as Dabur and Godrej Consumer (GCPL) are also not far behind when it comes to reining in costs.
“For the 2018-19 financial year, we feel comfortable we will be able to drive profit growth ahead of sales growth and deliver margin expansion,” Vivek Gambhir, managing director, GCPL, said. “There might be some volatility across quarters but we remain positive about the year as a whole. We will have a higher mix of profitable products this year, driven by a strong innovation agenda. We will also continue to work on costs savings initiatives, which should show good results in the third and fourth quarters,” he said.
Dabur’s CEO Sunil Duggal said the company’s work to realign product categories, launch products backed by innovation and look at distribution expansion in the right pockets had paid off. Not only did Dabur deliver a decade-high volume growth of 21 per cent in the April-June 2018 period, but earnings before interest tax depreciation and amortisation (or operating profit) grew 31 per cent, led not only by lower raw material costs but also efficiencies in other departments.