X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
FMCG: Not fast moving enough - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 3, 2008

    FMCG: Not fast moving enough

    While the FMCG sector continued with its growth momentum, the sector nevertheless under performed the BSE-Sensex in 2007. This can be gauged from the fact that while the Sensex notched gains of 45% in 2007, FMCG index grew by just 20%.

    Of the companies under our coverage, none have managed to beat the Sensex. Inflation, rising input costs and competitive environment played the spoilsports. In this article, we shall take a look at some of the top gainers and losers during this period and the outlook for the industry going forward.

    Company Price on Jan 02,2007 (Rs) Price on Jan 02,2008 (Rs) Change
    BSE-Sensex 13,942 20,645 48.1%
    BSE FMCG 1,941 2,397 23.5%
    Top Gainers
    Britannia 1,100 1,480 34.5%
    Marico 54 72 33.0%
    Nestle 1,148 1,496 30.3%
    Top Losers
    P&G 855 800 -6.4%
    HUL 216 216 0.0%

    The gainers...
    Britannia:
    The biscuit major witnessed a turnaround in margins led by a better mix and higher margin products. Its operating margins jumped from 5.8% in 1HFY07 to 9.2% in 1HFY08. The company currently has a 38% share of the market in value terms and has unveiled plans to increase its capacity by 20,000 tonnes a year to over 450,000 tonnes in the next couple of years. Although the market share had come under pressure in recent times (43% in 2003 to 39% currently), the company is clawing its way back. Further, it has also increased its presence in bread, cakes and rusks, which now worth more than Rs 2 bn, has grown at a CAGR of 24% over the last four years. It has also taken the inorganic growth path by forming a partnership with Khimji Ramdas Group to run two bakery product companies in the fast growing Middle East market and by picking up a 50% stake in Daily Bread (retailer of high-end bakery products.). All these factors along with low per capita consumption of biscuits make us positive about the company's medium to long-term growth prospects.

    Marico: Marico has continued with its strong double-digit growth in its topline over the last six quarters. Strong brands, better pricing power and the right mix of inorganic acquisitions has propelled Marico on a faster growth path. Also its strategy of shifting from being a branded commodity player to a 'beauty and wellness' major has worked well. It has identified new engines of growth and also is focusing on high margin products. It continues to improve its market share across product categories and is doing well on the international business. The management's uncommon thinking of transforming Marico from an oil company to a health and wellness firm is paying off well.

    Nestle: Having a predominantly urban oriented product portfolio, Nestle continues to benefit from a changing lifestyle and increasing consumerism. Also, the food processing business in India is at a nascent stage and is well poised to go into a higher orbit. Currently, only about 15% of the output is processed and consumed in packaged form. Penetration level as well as per capita consumption in India is also low. However, the trend is changing and the new fast food generation is slowly altering its habits. Valued at Rs 4,600 bn in 2004, the food-processing sector is expected to touch Rs 13,500 bn by 2015. Nestle's capacity to introduce new products, pricing power in the market and underlying healthy volume growth makes it a strong player.

    The laggards...
    Procter and Gamble:
    The stock was the worst performer among its peers falling by 6%. P&G is largely a two-product company, of which 'Vicks' being mainly a seasonal product used only in winters, sales are volatile. Further, the company also faces stiff competition in its product categories from smaller as well as foreign players. Also, the Indian market is extremely price sensitive and the company has been witnessing immense pressure from competitively priced products of other players in both its core businesses. However, the company divested its detergent manufacturing business, which led to an improvement in margins (from 25% in 1QFY07 to 31% in 1QFY08). Also, it is expanding its capacity and stands a good chance to be the outsourcing hub for its parent company. PGHH is an indirect play on the growing workingwomen population in our country. Feminine hygiene products still have a relatively low penetration in the Indian market. With improving income levels, the personal hygiene standards would go up too and would help companies like PGHH.

    HUL: For the year under review HUL's stock price remained flat. Besides the commodity price environment, which continued to be a major risk, competition from ITC and P&G were further dampeners. Though the dearth of innovations continued in terms of renovation and product extension within existing categories except water purifier (Pure it), HUL has not launched any new products over last few years, which limited its growth. However, the company is undergoing restructuring to focus on its core portfolio, building on its competitive advantage across the supply chain and expanding its foothold into new categories, mainly food and water. Going forward, HUL would benefit from its core, well-penetrated categories across price points. However, the same has to be reflected in its performance.

    Looking ahead...
    The FMCG companies witnessed volume and value growth last year. They even judiciously hiked prices to beat rising cost pressures. Further, the entry of new players intensified the already existing competition. While these issues are expected to weigh heavy on the performance of FMCG companies in the medium term, from a long-term perspective, the outlook for the sector is positive. Given the huge potential offered by the fast-growing Indian economy, this is not a difficult task. Many were able to sustain growth for a long time because they were comfortably placed in high-growth categories. However, the growth rate witnessed in last couple of years would slow down. Hence the companies will have to either focus on growth-accelerating measures in a specific geography or improving penetration. Those companies which will grow as per the changing environment, attitudes and preferences of the customers would stand a better chance. Considering all these factors and after giving due consideration to valuations, investors need to adopt a stock-specific approach while investing in the sector.

     

     

    Equitymaster requests your view! Post a comment on "FMCG: Not fast moving enough". Click here!

      
     

    More Views on News

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    P&G: Strong Core Growth (Quarterly Results Update - Detailed)

    Dec 9, 2016

    Procter & Gamble Hygiene and Health Care has announced the first quarter results of the financial year ended June 2017 (1QFY17). The company's sales rose by 12.5%YoY while net profit rose by 50.1% YoY during the quarter.

    Nestle India: Sales Traction From New Products (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.

    GSK Consumer: Price Hike Hurts Volumes (Quarterly Results Update - Detailed)

    Nov 30, 2016

    GSK Consumer Healthcare declared results for the quarter ended September 2016. The revenues dropped by 1.3% during the quarter as compared to a year ago; while the profits declined by 16.6% YoY during the quarter.

    Marico: Margin Expansion Drives Profit Growth (Quarterly Results Update - Detailed)

    Nov 28, 2016

    Marico has reported a flat topline while the bottomline has grown by 18% YoY during the quarter.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE FMCG


    Aug 22, 2017 (Close)

    S&P BSE FMCG 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS