FMCG: The story continues... - 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: The story continues...

Oct 16, 2006

With results around the corner, lets us analyse some key factors that are at the helm in driving growth for companies in the FMCG sector, and also take a look at the challenges that can impact the overall growth momentum. Macro story - no change: Powerful factors at play such as favorable demographics, rising incomes and outsourcing will help sustain the growth momentum in this sector. India is at a very favourable position in terms of demographic cycle, income as well as age. Rising consumption due to rapidly growing incomes for a major part of the workforce has led to a retail boom. Supporting this are trends in retail lending, which has benefited sectors such as housing and automobiles. Given that the key drivers like the investment cycle upturn, strong trends in consumption and outsourcing, and a increased focus on the rural sector are intact, we believe that growth is on the right track.

Robust demand: Over the past 8 quarters, sales growth for the sector has gained momentum. The managements of the FMCG companies expect the growth rate to be sustained in the ensuing quarters. While the urban demand will remain stable, a sharp pick up in the rural demand will fuel the growth. The expanding distribution network coupled with the higher number of product variants will help increase the volume growth.

Beyond soaps, tea: Indian consumer goods firms are looking beyond their traditional strongholds in packaged tea and soap and tapping emerging trends in health and personal care in search of bigger profits in an increasingly competitive market. Tata Tea, the world's second-biggest branded tea maker, bought 30 % of Energy Brands, which makes Glaceau vitaminwater, for US$ 677 m. Hindustan Lever (HLL) has launched a water purifier and a skin cream for men, while tobacco giant ITC Ltd has rolled out foods and fragrances and is investing more than US$ 1 bn on its rural shops and distribution centres. Marico and Dabur are foraying into areas including men's grooming and ready-to-eat food. New channels of sales, new product categories and new consumer segments are emerging.

Margin pressure: The margins may remain stable due to increase in the input prices. The players in the sector may also face pressure on the packaging front due to higher crude prices. However, the FMCG majors are in a position to hike prices of the products to offset the higher costs.

What to expect?
We expect the strong growth trend to continue in the coming quarters. The players' ability to control the product prices also remains a comforting factor. Overall, we expect the sector as a whole to perform well. However the valuations will remain a cause of concern.

Equitymaster requests your view! Post a comment on "FMCG: The story continues...". Click here!


More Views on News

What Happens if ITC Hives off ITC Infotech? (Views On News)

Nov 20, 2021

The cigarette to hotel conglomerate is reportedly mulling the demerger of its software business at a valuation of around Rs 250 bn.

What Sparked an 8% Rally in ITC Shares Today? (Views On News)

Sep 16, 2021

ITC did not participate in the rally after the second wave and continued to underperform its peers. Is this about to change?

HUL's Marketcap Tops Rs 6 Tn. Key Factors Driving the Stock (Views On News)

Aug 21, 2021

HUL became the fifth Indian company to achieve the milestone of a Rs 6-tn market capitalisation.

Adani Wilmar IPO to Hit the Market Soon. Should you Apply? (Views On News)

Nov 29, 2021

The parent company of the brand Fortune is set to raise Rs 45 bn from the market.

Key Points to Know Before Applying to Dodla Dairy's Public Issue (Views On News)

Jun 14, 2021

What you should know before applying to Dodla Dairy's IPO.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 3, 2021 (Close)