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: Temporary blip! - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 24, 2003

    FMCG: Temporary blip!

    What a year! The BSE-Sensex has gained 57% from January till December 10, 2003, and the year is yet to come to a close. While most sectors either moved in tandem with the benchmark indices or outperformed them, the FMCG sector was one of the few that really got 'left behind' in relative terms.

    If one looks at the graph below, that compares Rs 100 invested in both the Sensex as well as the BSE FMCG Index at the start of 2003, the underperformance becomes strikingly clear. The Rs 100 invested in Sensex had become Rs 157 by December 10, while the FMCG Index lagged behind with returns of Rs 128.

    However, it is not as if the FMCG sector has under performed the Sensex only in 2003, even if we look back at last year, where the Sensex gained only 4% in the entire 2002, the FMCG Index actually showed a decline of 11% during that year. The underperformance is hardly surprising considering that the sector was reeling under poor monsoons, consumer downtrading as well as severe competitive pressure. The agricultural output dipped by over 3% in FY03, one of the worst performances in recent years.

    The outperformers...
    (Rs) 31-Dec-02 10-Dec-03 % change
    BSE Sensex 3,377 5,286 56.5%
    S&P CNX Nifty 1,094 1,687 54.3%
    Gillette 314 700 123.0%
    P&G Hygiene 267 495 85.1%
    Tata Tea 174 312 79.3%
    Dabur 44 77 74.7%
    Godrej Consumer 94 164 73.9%

    If we look at individual company performances, out of the key 15 companies in the sector, only 5 were able to outperform the benchmark indices performance in 2003. These included Gillette, Tata Tea, P&G Hygiene, Dabur and Godrej Consumer. Out of these 5, the first 2 companies (Gillette and Tata Tea) reported a strong turnaround and saw an upward re-rating. P&G Hygiene, on the other hand, saw improved performance in both its product categories and also entered the cough syrup market. Dabur saw a re-rating largely led by the management's decision to demerge the company into separate FMCG and pharma businesses. Expectations of increased focus on both businesses, therefore, led to the optimism.

    Among the under performers (relative to benchmark indices), FMCG stalwart Hindustan Lever (HLL) finished at the bottom of the heap, hardly creating any capital gains for its shareholders. Increased competition, as well as lacklustre demand from rural India seems largely the reason for this. Also, with investors anticipating hardly any revenue growth, they seemed reluctant to accord HLL the high premium that it has traditionally received over its peers.

    The underperformers...
    (Rs) 31-Dec-02 10-Dec-03 % change
    ITC 660 982 48.7%
    Pidilite 229 324 41.1%
    Marico 164 232 41.1%
    Henkel Spic 23 33 40.9%
    Essel Propack 194 258 32.8%
    GSK Consumer 261 334 27.9%
    Nestle 523 655 25.2%
    Britannia 515 606 17.7%
    Colgate 135 151 11.7%
    HLL 182 188 3.5%

    What to expect?

    2003 rubbed off a lot of the feel good factor to the sector. Monsoons have been decent and widespread this year. Consequently, as per CMIE estimates agricultural output is likely to record a 10.7% growth in FY04.

    If one looks at the relationship between agricultural output and the FMCG Index, the correlation is stark (see graph above). Following the buoyant expectations of an increased agricultural output, the FMCG index has grown by a startling 59% in FY04 so far (April-December 2003). So, in a sense, although the sector under performed the Sensex, 2003 could be the foundation of a buoyant demand season ahead. Also, with improvement in infrastructure across India, it is expected that the ratio of consuming class to total households will touch 46% by FY07 (17.4% in FY95). In this light, companies with strong and widespread distribution networks will be well positioned to take advantage of an upturn in demand.



    Equitymaster requests your view! Post a comment on "FMCG: Temporary blip!". 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

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    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


    Aug 24, 2017 01:10 PM