Despite bumpy ride, FMCG companies like Dabur, Marico perform well in India compared to outside

Have FMCG (fast-moving consumer goods) companies managed to make up for the lacklustre business in India with their presence in international markets? An ET analysis of five leading FMCG companies which have expanded in markets outside India shows that profitability in most cases remains lower abroad than in the country. The Indian market continues to generate higher Ebitda margins despite the ongoing slowdown and high inflation.

The companies selected for the analysis include Dabur, Asian Paints, Godrej Consumer Products, Marico and Tata Global Beverages, and the performance of their international business has been derived by isolating the numbers of the standalone business from the total consolidated results. “While international business is not as profitable as the domestic business of Indian FMCG companies, it gives them the much-needed topline growth and also acts as a hedge in the case of any real slowdown in the Indian business,” said Suruchi Jain, research analyst with Morningstar Inc. Since the international businesses are acquired in most cases, the inevitable change in the management and strategy leads to some delay in increasing the margins, she added.

Marico, in recent quarters, and Dabur, in the quarter to June, have been able to increase the profitability of their international businesses. However, the international businesses of Godrej Consumer Products (GCPL), Asian Paints and Tata Global Beverages have continued to earn lower margins than their domestic businesses.

While Marico has managed to improve the profitability of its international business, it has not succeeded in delivering on the topline front. The company plans to reinvest part of the margin expansion into the business by cross-pollinating products across locations. It plans to maintain margins at 14-15% in the long run.

Dabur, which earns one-third of its revenues from its overseas business, expects 15% constant currency sales growth (that was seen in the quarter to June) in the international business to continue.

Analysts expect the sales traction and profitability of its US based Namaste Labs to improve in second half of the current fiscal.

While GCPL has undertaken initiatives to reduce cost in a drive to improve margins in its international business, analysts believe the business could need substantial investments behind brands in future, limiting the recovery in margins. Asian Paints has earned margins of 8-10% in its international business, compared with 15-17% margins in the domestic business.

Shrinking volumes and mounting advertising and promotion spends pose challenges to profitability in Tata Global Beverages’ international tea and coffee operations, according to latest report on the company by Anand Rathi Institutional Research.