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 in store? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jul 14, 2006

    FMCG: What's in store?

    FMCG companies are slated to announce their results next week and some the week after that. After two years of decline, since FY05, the sector has seen demand growing. Growth has been led primarily by volumes, with margins taking a hit across companies. Even in FY06, despite strong growth across segment, value growth followed growth in volumes. In this article, we analyse some key factors that are at the helm in driving growth for companies in this space, and also see at challenges that can impact the overall growth momentum.

    Major growth drivers
    Favourable demographics: India is currently at a sweet spot in the demographic cycle both in terms of income as well as age. This demographic structure has major positives for India, both on account of rising consumption and rapidly growing incomes. Fundamentals of Indian consumer companies look robust, with strong demand translating into robust underlying volume growth. While urban demand growth remains steady, the broad acceleration in demand has been driven by a sharp pick-up in rural growth. Though the rising interest rates may have marginal effect on the demand side, we continue to believe that growth is on the right track. The upturn in investment cycle, strong trends in consumption and outsourcing, and a trickle-down affect in the rural sector will leaf growth into the future.

    Value chain: Improvement in incomes, 'feel good factor' and an increased pace of innovation are likely to drive consumers to move up the value chain. With 45% of the Indian population estimated to be below 20 years of age, willing to spend more with rising disposable incomes, growth in consumer demand is expected to accelerate. Rise in income levels and improving literacy rates (from 52% to 66%) from 1991 to 2004 are expected to raise demand for 'branded' products. Also the growth recovery in FMCG will not be restricted to a few sectors or companies, but instead be broad-based.

    Organised retailing: Probably, this is one of the most prominent reasons for us to be positive on the prospects of the FMCG sector. Organised retailing is currently 4% of total FMCG offtake in the country, and is growing at 30% per annum, while general retailing is growing at 10% per annum. We believe that, going forward, the trend will be that organised retailing contribution will gradually increase, and it will be an important factor for the FMCG sector's growth.

    Key challenge

    Margins: While sales growth continues, we believe that margins may come under further pressure, mainly due to high commodity prices resulting into higher raw material costs. Additionally, consumer companies are also investing heavily in brands in an environment where growth is picking up, and advertising expenditure has remained high across the board. While some price hikes have been affected in certain segments, to mitigate raw material costs, pricing power in the real sense is still not back. In our view, changes in the pricing environment, an improving product mix and a slew of cost reduction programs by companies should see offset these cost pressure.

    What to expect?
    Despite interest rate hikes, there are more powerful factors at play such as favorable demographics, rising incomes and outsourcing that will help sustain the growth momentum for the sector. Higher penetration levels (breadth) and increased per-capita consumption (depth) will also influence the performance of the sector. Also, product mix is improving, with consumers moving up the value chain, and the growth has been both urban- and rural-driven. The FMCG sector, therefore, is a play on 'India's consumption story', for which things are looking up.

     

     

    Equitymaster requests your view! Post a comment on "FMCG: What's in store?". 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 (Close)

    S&P BSE FMCG 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS