ImagePharmaceutical firms and makers of consumer goods such as soaps and shampoos are considered as reliable defensive bets in times of economic distress. Their performance in the fiscal third quarter has, however, done little to bolster that impression. Both these sectors posted lower net profits and margins despite a double-digit growth in revenues.

An analysis of the aggregate results of 113 listed fast-moving consumer goods (FMCG) companies reveals a 28% y-o-y fall in net profit to Rs 2,519.2 crore in the December 2008 quarter. The companies did grow their revenues by 17% during this period, but this was more a result of higher pricing than increased sales volumes. As a result, the net profit margin dropped by 617 basis points to 12.2%. The operating margin was maintained at 16.8%.

While the lower input costs will help companies during this quarter, consumer demand will be a key and unpredictable variable.

The FMCG sector was weighed down in the third quarter by discounted sales, lower market growth in categories such as soaps and detergents and slowdown in consumer demand.

While a majority of companies, including Hindustan Unilever, Godrej Consumer Products, Jyothy Laboratories, Emami, Tata Tea and Nirma saw a decline in profits, ITC, Dabur, Marico, Colgate Palmolive, GSK Consumer Healthcare, Britannia and Procter & Gamble reported a y-o-y profit growth during the quarter.

A similar analysis of the aggregate results of 131 listed pharma companies shows a 74% y-o-y decline in net profit to Rs 553.7 crore in the third quarter. The export-oriented pharma firms haven’t benefited from the rupee depreciation.

The quarter saw a sharp contraction in profitability as operating margins fell to 7% from 19% and net margins shrank to 3% from 14% a year ago. Forex losses arising from hedging and foreign currency loans, delays in product launches in the US market and delayed payments from drug distributors contributed to lower profitability.

During the current quarter, the performance of the pharma sector will hinge on speedy new drug clearances from the US Food and Drug Administration, rupee movement and general economic conditions.

Lupin, Piramal Healthcare, Glenmark Pharma, Ipca Laboratories, Elder Pharma and Biocon reported a double-digit drop in net profit, while Ranbaxy, Jubilant Organosys, Panacea Biotech, Matrix Laboratories, Orchid Chemicals and Shasun Chemicals saw a triple-digit decline in profits.

Sun Pharma, Cipla, Cadila Healthcare, Torrent Pharma, Unichem Laboratories and JB Chemicals reported a growth in profits, while Dr Reddy’s Laboratories posted a healthy rebound in net profits to Rs 192 crore from a loss of Rs 121 crore in the December 2007 quarter.

With the exception of Abbot India, the Indian units of most multinational firms — Pfizer, Novartis, Wyeth — registered a y-o-y increase in profits. These companies bucked the negative sectoral trend, thanks to a niche product mix, non-aggressive hedging, drug exclusivity periods, growth in market share and successful product launches.