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Top performing FMCG stocks in the present rally - Views on News from Equitymaster
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Top performing FMCG stocks in the present rally
Mar 9, 2010

9 March 2009. The day the current stock market rally started. Today it is exactly one year since then. Let us examine stocks in the FMCG space which appreciated the most during this period and analyse the reasons for their strong performance. Procter and Gamble (Gain 179% YoY)
The top gainer of the year was P&G. The star of this performance has been the companyís feminine hygiene product. Over the last four quarters, this segment has been showing an average growth of 29% over the corresponding quarters of the previous year. Further, the companyís health care segment comprising of the Vicks portfolio contributed to the companyís strong performance by turning an average growth in the lower double digits over the previous four quarters. Furthermore, on operating margin level, the companyís margins expanded from 23.8% in 2QFY09 to 35.3% in 2QFY10. This was the result of fall in raw material costs and lower advertisement costs. The net profit margins also expanded from 20.8% in 2QFY09 to 27.1% in 2QFY10 as a result of higher sales growth and higher operating profits. At the current market price of Rs 1920 the stock is trading at 24.5 times our estimated FY12 earnings. However, at this level, we believe most of the upside of the stock is captured in the stock price.

Godrej Consumer Products Limited (Gain 110% YoY)
The company was a key beneficiary of the down trading we observed as a result of the economic slowdown. While GCPLís competitors increased prices as a result of higher commodity prices, the company refrained from passing on the entire increase taking a hit on its margins. However, the company benefited from this strategy in the form of higher market share when consumers down traded. As a result the market share of soaps increased from 9.7% in 3QFY09 to 10.3% in 3QFY10. Over the previous 4 quarters, the average increase in net sales was 40.7% over the corresponding quarters the previous year. Furthermore, as commodity prices softened, GCPL benefited from increase in its operating margin. Operating margin improved from 14.1% in 3QFY09 to 19.7% 3QFY10 while net profit margin improved from 11.7% in 3QFY09 to 16.4% in 3QFY10. At the current price of Rs 268 the stock is trading at 20 times our estimated FY12 earnings. At this price the stock is fairly priced and hence we would advise our investors to practice "CAUTION".

Dabur (Gain 92% YoY)
Daburís ayurvedic platform held it in good stead during the last four quarters. The company witnessed growth in all its business segments and increase in market share in several categories. Over the past four quarters, the growth in sale for Dabur has been on an average 20.8% over the corresponding quarters the previous year. The operating margin for the company expanded from 17.1% in 3QFY09 to 19.3% in 3QFY10. This increase has been a result of fall in raw material prices. However, net profit margin expanded from 13.8% in 3QFY09 to 14.8% in 3QFY10. This is a result of some of the companyís plants completing the tax exemption period. At the current price of Rs 173, the stock is trading at 26 times our estimated FY12 earnings. We believe that at this level the stock is expensive and advise our investors to practice "CAUTION".

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