FMCG stocks drag markets down

Mon, 25 Jul 11:30 am

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Indian stock market indices have been trading weak over the last two hours of trade on sustained selling across sectors. FMCG and IT stocks are leading the losses while stocks from the oil and gas and healthcare sectors have managed to record gains.

The BSE-Sensex is down by 12 points while NSE-Nifty is trading flat at the moment. BSE-Midcap and BSE-Small cap indices are up by 0.4% each. The rupee is trading at 44.42 to the US dollar.

Media stocks are trading mixed with Saregama and Reliance Broadcast leading the pack of gainers. However, TV18 and HT Media are trading in the red. The print media company DB Corp has plans to invest Rs 1 bn in FY12 to expand its operations in existing markets as well as enter newer markets. The company has been expanding in the recent past with new launches in Jharkhand and Maharashtra. It has publications named Dainik Bhaskar, Divya Bhaskar, Saurashtra Samachar, and Business Bhaskar among others.

As per the management, merely entering a new state is not sufficient, they want to get into newer untapped markets in these states and then claim that they have presence across the country. At present, DB Corp is present in 17 states including Madhya Pradesh, Chhattisgarh, Rajasthan, Haryana, Punjab, Chandigarh, Himachal Pradesh, Maharashtra and Jharkhand. The company intends to spend money on promotions and marketing too. However, there are no specific plans for expansion in the radio business post phase III rollout of radio station licensing.

FMCG stocks are trading weak led by ITC and Godrej Consumer. Colgate Palmolive released its 1QFY12 results. The company's top line grew by 14.5% YoY during the quarter. This was on the back of strong sales growth of 14% YoY in the toothpaste category. Contribution from flagship brands like Colgate Dental Cream, Colgate Sensitive, Active Salt, Max Fresh and Colgate Total contributed to the strong growth. However, operating income fell by 15.2% YoY. Sharp increase in cost of material, advertisement cost and other expenditure resulted in this fall. Raw material costs increased by 25% YoY, while advertisement expenses and other expenditure increased by 42% YoY and 24% YoY respectively. Bottom line fell by 17.7% YoY during the year as a result of fall in operating income and higher effective tax rate. Effective tax rate increased from 22% in 1QFY11 to 27% in 1QFY12. This is because the company exhausted its 100% tax exemption period at its Baddi plant. During the quarter, the company launched Colgate 360 Sensitive Pro-Relief Toothbrush, Colgate Plax Sensitive Mouthwash, Colgate Plax Complete Care Mouthwash and Colgate Sensitive Pro-Relief Toothpaste.