Foreign FMCGs: Sales grew 19%, profits 16% in 2012 – Topline Research
With the blessings of small-town boom, higher workers’ remittances, urbanization and changing consumption patterns, 2012 was another good year for leading multi-national FMCGs (Fast Moving Consumer Goods) operating in Pakistan. In spite of energy shortages, economic slowdown, security issues and declining investment in Pakistan, consumer driven growth story continued as 2012 witnessed 19% sales and 16% profitability increase for the listed FMCGs like Unilever, Unilever Foods, Nestle & Colgate. As a result these listed companies generated a return of 65% (53% in US$) for their shareholders in 2012 compared to 49% gain (38% in US$) by benchmark index.
We attribute the growth to fast pacing consumer spending in spite of low GDP growth of Pakistan in recent years. Consumer spending had not only remained immune from the downfall but has also served as an engine to the economic growth, thanks to rising share of informal economy in last few years. The trend is also evident from the higher import of consumer goods, opening of new malls/restaurant and influx of several global brands into the economy.
Sales reached Rs164bn and profits Rs13bn in 2012
In last 5 year, collective sales of these foreign MNCs grew at 22% CAGR to Rs164bn (US$1.8bn) compared to Rs75.4bn (US$1.1bn) in 2008. In addition to the sales growth, ability to pass on cost pressures provided further strength to the bottom-line. During the period, gross margins and operating margins improve to 8% and 12.8% in 2012, respectively, as compared to 6.1% and 10.3% in 2008. Resultantly, bottom-line of these companies increased at a CAGR of 25% to Rs13.2bn (US$141mn) in 2012.
Similarly, compared to Rs138.2bn (US$ 1.6bn) in 2011, sales of these companies grew by 19% in 2012. Further, improvement in the gross and operating margins resulted in 23% increase in gross profits to Rs51bn and 21% rise in operating profits to Rs21bn in 2012. In the end, profitability of these companies grew by 16% to Rs13.2bn (US$141mn) in 2012.
Consumption mainly led by rural economy
In FY12, real consumption in Pakistan has increase by 11% according to government statistics compared to 3.9% in FY11 and was the only positive contributor to the economic growth. Currently, household consumption constitutes 75% of the GDP in Pakistan which is much more than the 47% in Malaysia, 70% in Sri Lanka and 57% in India &Indonesia.
We highlight rising remittances as a main cause of the massive growth in consumption. Increasing remittances has effectively increased purchasing power and living standards of households, especially in rural areas. Further, higher agricultural production, commodity support prices and income support programs have also provided the push in the shape of higher demand in rural areas.
In addition, changing consumption patterns are also lending its due hand in consumer firms’ boom. Since the explosion of mass media to the corners of the country, consumers are more inclined towards branded items highlighted in the advertisements.