FMCG stocks: Hit by the software fever - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

FMCG stocks: Hit by the software fever

May 18, 2000

A number of stocks in the FMCG (fast moving consumer goods) sector are trading at or near their 52 week low. Yet, there are no takers. The euphoria surrounding TMT (technology, media and telecom) stocks in the past few months has adversely affected stocks in other sectors. FMCG stocks are one of them.FMCG stocks are popular among investor as they provide good returns with minimal risk. The topline growth of the companies in this sector is highly linked to the economic growth. During FY00, India's GDP grew by 5.9% compared to 6.8% in the previous year. With the sustained growth in economic activity, consumer spending has increased, boosting the topline growth of FMCG companies.

These companies have maintained their excellent financial performance over the last few years. Stringent cost control measures have enabled them to improve their profit margins. Also the returns to shareholders (dividend and bonus) is increasing due to higher cash profits. Nothing seems to have changed. Except the valuations.

The table is reflective of the fact that current valuations are not comparable to the valuations enjoyed by the companies in the past.

Avg. Market Cap. (Rs bn) 14.2 18.0 24.2 32.1 52.5 36.7 16.1 29.7 20.3
Market Cap to Sales (x) 1.2 1.8 2.8 2.1 3.4 2.3 2.3 4.1 3.1
Market Price to Book Value (x) 6.9 12.1 19.9 11.1 13.7 13.3 5.4 10.0 8.9
Price / Earnings Ratio (x) 24.9 45.5 83.5 30.0 49.1 42.5 16.5 30.4 25.0

In the past companies like Nestle, Britannia and Cadbury enjoyed premium valuations due their high brand value. However, it seems that value of their brands is not reflected in their current market capitalisation. Moreover, it seems that the market is ignoring the fact that these companies have good growth prospects, given the large potential of the Indian market.

FMCG stocks are likely to be re-rated in time to come, once the perception of the investor changes. With TMT stocks having taken a beating, this is more likely to happen sooner than later.

Equitymaster requests your view! Post a comment on "FMCG stocks: Hit by the software fever". Click here!


More Views on News

Varun Beverages Q1 Review: Net Profit Rises Two-Fold; Board Announces 1:2 Bonus Issue (Views On News)

May 4, 2021

Varun Beverages' two-fold jump in profit came on the back of strong volume growth and demand recovery.

ITC Announces Quarterly Results (3QFY21); Net Profit Down 11.6% (Quarterly Result Update)

Feb 12, 2021 | Updated on Feb 12, 2021

For the quarter ended December 2020, ITC has posted a net profit of Rs 37 bn (down 11.6% YoY). Sales on the other hand came in at Rs 125 bn (up 4.0% YoY). Read on for a complete analysis of ITC's quarterly results.

KRBL Announces Quarterly Results (3QFY21); Net Profit Down 8.6% (Quarterly Result Update)

Feb 11, 2021 | Updated on Feb 11, 2021

For the quarter ended December 2020, KRBL has posted a net profit of Rs 1 bn (down 8.6% YoY). Sales on the other hand came in at Rs 11 bn (down 15.7% YoY). Read on for a complete analysis of KRBL's quarterly results.

Burger King IPO: Should You Subscribe to This QSR Chain Business? (IPO)

Dec 2, 2020

Does the company with one of the fastest-growing QSR chains in India have sound prospects?

JUBILANT FOODWORKS 2019-20 Annual Report Analysis (Annual Result Update)

Dec 17, 2020 | Updated on Dec 17, 2020

Here's an analysis of the annual report of JUBILANT FOODWORKS for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of JUBILANT FOODWORKS. Also includes updates on the valuation of JUBILANT FOODWORKS.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

Don't Break These 5 Intraday Trading Rules (Fast Profits Daily)

Jun 1, 2021

To become a better intraday trader, follow these rules religiously.

Is the RBI's 'Bubble Talk' Signalling a Market Crash? (Profit Hunter)

May 31, 2021

Is the Indian central bank correct in warning you about a market crash?

Rs 2 Trillion Stimulus Coming to a Stock Market Near You (Profit Hunter)

Jun 2, 2021

Get ready to profit from a massive stimulus that you've never seen before.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms