FOCUS-Consumer firms hike ad spend, margin threat looms

By Aniruddha Basu and Nandita Bose

MUMBAI, Nov 20 (Reuters) - Consumer firms in India are raising advertising and promotional spends this fiscal to lure shoppers and garner volumes but margin pressure due to rising costs may spoil the party.

"There is certainly a pick-up in sentiment... and with the release of money, advertising volumes are following," Naveen Talreja, senior vice-president, Ogilvy & Mather India, said.

While Hindustan Unilever Ltd (HLL.BO: Quote, Profile, Research), India's top consumer goods maker, raised its ad spend by 38 percent in the September quarter from the same period a year earlier, smaller rival Marico Ltd (MRCO.BO: Quote, Profile, Research) increased it by 60 percent and Godrej Consumer Products Ltd (GOCP.BO: Quote, Profile, Research) more than doubled its spend.

"Our ad-spend this year will be almost 40-50 percent higher than last year. We are focusing on our three main brands-Godrej No 1, Cinthol and our hair colour portfolio," said V. Suresh, vice-president, marketing, Godrej Consumer.

Paints maker Kansai Nerolac (KANE.BO: Quote, Profile, Research) is also raising ad-spend in FY10 by upto 100 million rupees. Last year it spend 500 million rupees on advertising.

With a sharp correction in raw material prices after they surged through the roof and having raised prices to boost sales last year, companies are reinvesting a portion of their high margins on brand building this fiscal.

"FMCG companies would not like to retain all of their gains, so they are increasing the promotion, ad spends to get more customers," said Anand Shah, an analyst with Angel Broking.

"This year due to high gross margin expansion they are reinvesting certain portion of their gains on ad spends."