“Given moderation in input cost prices, gross margins have expanded meaningfully for most companies in our coverage,” Kunal Vora, head, India Equity Research at BNP Paribas India, said in a report dated 10 January. “However, in line with most FMCG firms’ commentary, as margins recover, they have reinvested a significant portion in ad spends with a focus on reviving volumes.”
“Our absolute A&P investments were almost ₹400 crore higher (in Q3FY24) than last year as we continue to invest competitively behind our brands and maintain share of voice ahead of share of market,” Ritesh Tiwari, CFO and executive director, finance and IT, Hindustan Unilever Ltd (HUL), said during a post-earnings call last month.
Experts said ad spends are expected to rise going ahead. “In FY25, given raw material is likely to be stable and rural demand is likely to start recovering, FMCG companies will increase ad spends-to-sales ratio a bit,” said Abneesh Roy, executive director, Nuvama Institutional Equities.
According to the BNP Paribas report, edible oil prices were down 30% year-on-year (y-o-y) in Q3, while that of crude oil were down 7% over the same period after declining for three preceding quarters. Palm oil prices were down 6% y-o-y in the third quarter of FY24, it said. Vora of BNP Paribas further said: “We think these companies will also need to focus on improving product visibility, especially for new launches, as competition remains high from both organized and unorganized players.”
HUL said in categories such as skin cleansing and laundry, the company raised grammage or expanded trade promotions. “But equally, for these categories, along with other premium portfolios and other categories, we further dialled up A&P investments as well,” Tiwari said, adding that ad spends will get further amped up in response to greater market competition.
Vatika shampoo maker Dabur India increased A&P investments by around 36% year-on-year in the December quarter. “We believe these media investments are essential to drive long-term sustainable growth and maintain our market leadership,” said Mohit Malhotra, CEO, Dabur India.
The company will continue to drive profitable growth across its business verticals, backed by investments in distribution network, brands, manufacturing, digital and organizational capabilities, Malhotra added. The company also launched more low pack sizes for rural markets.
Liquor major Diageo India’s A&P reinvestment rate was 11% of sales in the December quarter, reflecting the seasonality and investment behind the brands during the festive quarter as well as in the cricket world cup, the company said.
The ongoing quarter will remain a high A&P quarter for Diageo. “There are two or three reasons for it; one is that Don Julio (tequila) has just been launched, we would want to sustain our A&P investments on that. There is some discussion in view of the general election, the IPL probably to be advanced, so WPL or Women’s Premier League and IPL will happen in February and a good part of it might as well happen in March. So, we would want to remain absolutely salient during the cricket season when the entire country kind of gets together,” said Pradeep Jain, CFO, Diageo India.
The company will also be injecting “some amount” of A&P into its popular or low-priced brands to resurrect the momentum, it said.
Meanwhile, in the December quarter, Colgate-Palmolive (India) Ltd’s ad spends grew 20% y-o-y and stood at 14.7% of revenue. The quarter saw Colgate relaunch its second largest toothpaste brand, Maxfresh, and the “Sweet Tooth-Brush at Night” campaign.
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Published: 05 Feb 2024, 11:23 PM IST