Indian giants benefit from advertising

15 July 2009

MUMBAI: Companies that increased their advertising expenditure levels in India during the last fiscal year enjoyed a bigger upturn in revenues and net profits than those which cut back, a new piece of research has revealed.

It has been argued in a number of studies (accessible here) that brand owners which maintain or raise their adspend during periods of financial stress are frequently able to improve their overall position as competitors rein in their activity.

According to an analysis of 250 of India's biggest publicly-listed firms by the newspaper the Economic Times, 140 companies boosted their marketing outlay over the financial year ending in March 2009.

On average, this group saw annual revenues grow by 26% year-on-year, with adjusted net profits also improving by some 20% on a comparative basis.

Hindustan Unilever, the country's biggest advertiser, spent an estimated 2,131 crore rupees ($436m; €312m; £268m) on ads in the 15 months to March, amounting to 11.3% of total sales, according to Angel Broking.

It also increased its adspend by 2.6% in the first three months of this year, and the FMCG sector is predicted to be one of the main drivers of Indian revenue growth in the short-to-medium term.

The companies that boosted their marketing budgets by over a quarter during the timeframe assessed by the Economic Times included ITC, the FMCG-to-hotels group, the State Bank of India, and pharma companies Aventis, Merck and Piramal Healthcare.

R Gowthaman, South Asia leader of MindShare, said that "on a national level, advertising clutter has come down," meaning brands that continued to spend gained from "higher visibility and more bang for their buck."

By contrast, the 110 brand owners that reduced their expenditure in this period saw revenues rise by 17%, with net profits expanding by 10% compared with the previous year.

Companies in this category included Novartis, the pharma giant, electronics firm Siemens, Century Textiles, the apparel manufacturer, and Marico, the consumer products company.

However, Aashish Upganlawar, FMCG analyst at Sharekhan, a brokerage, warned that "increased adspend is only one factor driving growth."

"Others factors like overall economic buoyancy in rural markets, higher distribution footprint, government providing more job opportunities and more aggressive consumer promotions contributed equally."

Data sourced from Economic Times; additional content by WARC staff