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: What's it upto? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 11, 2005

    FMCG: What's it upto?

    Fast moving consumer good (FMCG) stocks have been the talk of the town from sometime now, not because of abnormal returns given to investors unlike all other sectors, but for clearly underperforming even the benchmark indices from a while.

    Vs the Sensex...
    BSE-Sensex 184
    HLL 60
    ITC 169
    Colgate 122
    Britannia 125
    PGHH 158
    *Current value of Rs 100 invested in April 2001

    From the above table, we infer that the top 5 key FMCG players have clearly under performed the Sensex, the benchmark index.

    HLL:  The FMCG bellwether in India grew in strong double digit figures throughout the nineties but has been struggling from sometime now for topline as well as bottomline growth. It was hit badly last year when P&G declared a price war in the detergents segment through its 100% subsidiaries forcing the major to offer hefty price cuts.

    ITC:  With a 70% market share in the cigarette segment, the undisputed leader pays a huge sum as excise and other taxes to the exchequer, which is amongst the highest in the globe and as per the company, almost 130% of the MRP. ITC has not been able to grow much in the past few years owing to the higher taxes and measures like ban on advertising and smoking in public places.

    Colgate:  Colgate India has lost considerable market share from 65% in FY95 to around 49% currently, owing to HLL's competitive pressure. Added to that, the oral care segment has hardly grown in volume terms over the last 3 years. The company has seen de-growth of 4% on a CAGR basis from FY00 to FY04. All this, and new entrants like Anchor and Dabur, forced the company to cut prices by 17% in FY03 in a bid to kick start volume growth. Though volumes have picked up, the near term future of the company depends on its worldwide archrival, P&G, which has plans to launch its toothpaste brand Crest in India.

    Britannia:  Market leader of the Rs 30 bn biscuit segment, the company has a strong brand folio with successful brands, but off late, it is facing stiff competition from players like Surya Foods (Priyagold) and ITC (Sunfeast) since they offer the same type of product at significantly lower prices. Moreover, archrival, Parle, is not far behind. The company has grown at a CAGR of 6% over last 5 years. However, with the consuming class burgeoning in India, considering the lower price points of the biscuit category, the sector is likely to grow at a decent pace.

    P&G Hygiene:  The company is focused on two-products (Vicks and Whisper) and also carries out manufacturing of detergents on contractual basis for its parent's 100% subsidiary. P&G has traditionally adopted the high quality, premium pricing policy for its products. 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.

    Combined revenue snapshot of 5 majors...
    (Rs m) 2000 2001 2002 2003 2004 CAGR
    Net sales 165,649 176,246 186,478 185,021 195,648 4.2%
    Other Income 5,146 5,333 5,808 6,393 7,635 10.4%
    Expenditure 137,264 141,587 146,878 140,235 147,856 1.9%
    EBITDA 33,531 39,992 45,409 51,179 55,427 13.4%
    Operating margin % 20.2% 22.7% 24.4% 27.7% 28.3%  
    Net profit after Tax(Loss) 20,825 25,315 31,810 33,829 36,836 15.3%
    Net profit margin % 12.6% 14.4% 17.1% 18.3% 18.8%  

    It is visible that the 5 company's have shown a CAGR of 4% over the years while the Sensex grew at 16-17% Y-o-Y during the same period.

    What's the future?
    FMCG sector has seen some signs of revival in recent months. Owing to availability of cheap consumer durable finances and home loan EMI's, consumers were downtrading their purchases in this segment and migrating to other aspirational products. However, the trend is slowly changing, owing to competitive pricing and more choice among products.

    Implementation of VAT is a major boost for FMCG companies. There might be some initial hiccups but brands will become more affordable in the long run. The entire supply chain will be streamlined making life easier at both ends. Also, import duties on raw materials like linear alkyl benzene (a key input in detergents) being lowered in the recent budget is a positive for the sector.

    The FMCG sector still holds promise and inclusion of the sector is a must for a stable portfolio. Macroeconomic factors are in the favour of FMCG companies, which is a big positive. Consumer lifestyle is changing, wit greater focus on health and nutritious food in his diet. Although topline growth is negligible, bottomline growth has continued due to continuous cost cutting and supply chain innovations.

    With a direct co-relation to monsoons, which have been quite good last year, downside for these stocks seems limited. But at the same time, over the long term, FMCG companies will need to re-examine the price-value equation and be satisfied with lower margins, and higher volumes. They must remember that FMCG is more of a volume game than a value one. These steps would build a secure growth, which cannot be overlooked. Competitive pricing can raise the per capita consumption, which is low in almost all products compared even to other developing nations, leave alone developed ones.

     

     

    Equitymaster requests your view! Post a comment on "FMCG: What's it upto?". 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

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    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.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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 18, 2017 02:32 PM

    COMPARE COMPANY

    MARKET STATS