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Top 4 FMCG Stocks to Watch Out For

May 6, 2022

Top 4 FMCG Stocks to Watch Out For

India has gone from importing packaged goods to exporting them in the past few decades.

This was mainly due to the exponential growth of the fast-moving consumer goods (FMCG) sector. With growing consumer needs, a rising population, and changing lifestyles, the sector is expected grow further.

Moreover, FMCG companies are usually well established, have loyal customer bases, are cash rich, and have low debt levels, making them worthy investment opportunities.

Here are top four FMCG stocks that must go on everyone's watchlist.

#1 Nestle India

First on our list is Nestle India, one of the world's largest food and beverage companies.

The company's return on equity (RoE) in the financial year 2021 stood at 103.1%, showing excellence in generating returns for its shareholders.

Nestle India, a subsidiary of Nestle S A, primarily manufactures milk and nutrition products, chocolates and confectionary, prepared dishes and cooking aids.

It holds market leadership in several of its product categories, and some of its well-known brands include Maggi, Cerelac, Everyday, Munch and Kit Kat.

The company currently has eight state-of-the-art manufacturing facilities in India and a wide distribution network reaching over three million retail outlets.

In the last three years, Nestle India's revenue has grown at a compound annual growth rate (CAGR) of 5.5%, driven by volume growth due to penetration into rural areas.

The net profit also grew at a modest rate of 2.9% (CAGR).

Nestle saw its volumes grow during the pandemic due to increased in-house consumption. It also partnered with restaurants and developed quick service recipes for their menus.

In the recent quarterly results, its revenue has grown at 9.9% year-on-year (YoY), but the profit slightly declined by 1.3% due to higher raw material expenses.

Going forward, to beat inflationary pressures, the company will continue to undertake price hikes to maintain its profit margins.

However, continuous price hikes might affect the volumes of the business.

To know more about Nestle India, check out its factsheet.

#2 P&G Hygiene and Healthcare

Next on our list is a leading femcare and healthcare consumer goods company, P&G Hygiene and Healthcare.

The company's RoE in the last fiscal stood at 95.2%. P&G Hygiene, the Indian arm of P&G, manufactures and sells branded packaged consumer goods in the health care segment.

It holds market leadership in feminine care brand Whisper. Some of its other brands include Oral B, Olay, Vicks, Pampers, Ariel, and Pantene.

In India, it has two manufacturing facilities through which it carries out all its manufacturing activities.

The company has a wide distribution network covering entire India. It also has a global presence with operations in over 70 countries.

The company also spends close to 10% of its revenue on advertising expenses which helped it gain recognition as a household brand.

In the last three years, P&G Hygiene's revenue grew at a CAGR of 6.4%, driven by volume growth.

The net profit also grew at a CAGR of 15.9%. In the recent quarterly results, its revenue has grown at 7% YoY and the net profit declined by 15.4% due to inflationary pressures.

Going forward, to maintain its profit margins, the company should undertake marginal price increases.

To know more about P&G Hygiene, check out its factsheet.

#3 Britannia

Third on our list is Britannia Industries, a market leader in the biscuit segment.

The company's RoE in the financial year 2021 stood at 52.6%. Britannia Industries, part of the Wadia Group, is engaged in the business of manufacturing food products such as biscuits, bread, cakes, rusks, diary, and salted snacks.

It's also the largest player in the organised biscuit market. It has a portfolio of reputed brands such as Good Day, Tiger, Marie Gold, and Bourbon.

The company has five manufacturing facilities in India with multiple manufacturing lines. Besides this, it has over 80 manufacturing units from where it sources its products.

Britannia Industries also has an extensive distribution network with a retail presence in over five million outlets.

In the last three years, the company's revenue grew at a CAGR of 6.1%, led by volume growth due to product innovations. The net profit also grew by 17% (CAGR) during the same time.

During the pandemic, the company followed the 80-20 rule and concentrated on 20% of the products, which brought in 80% of the revenue. This helped the company improve its sales during the lockdown.

In the recent quarterly results, the revenue grew 11.8% YoY but profits declined 18.3% due to inflation.

Going forward, the company is building a mega factory to expand its capacity indicating good growth prospects in the long term.

However, Britannia Industries' profit margin is subject to inflationary pressures in the short-medium term.

To know more about Britannia Industries, check out its factsheet.

#4 Marico

Last on our list is Marico, a leading brand in the beauty and wellness industry.

The company's RoE in the financial year 2021 stood at 37.4%. Marico is a consumer goods company that deals in a diverse range of products, including haircare, skincare, edible oils, male grooming, and healthy foods.

Some of its brands include Parachute, Saffola, Livon, Nihar, and Set Wet. The company also has market leadership in most of its product categories.

Marico has eight manufacturing facilities in India and a pan India distribution network covering close to 50% of the retail outlets in the country.

The company has grown inorganically through acquisitions over the past few years and took in major personal care brands under its umbrella.

In the last three years, Marico's revenue grew at a CAGR of 3.1%, driven by growth in all its product categories.

The net profit also grew at a CAGR of 2% during the same period.

During the pandemic, the company focused on improving its healthy food portfolio and included immunity-boosting and nutritious food categories in its portfolio.

In the recent quarterly results, the company's revenue has grown by 13.2%. Its net profit also grew by 1.6% despite higher input costs.

Going forward, the company is planning to launch new products under its nutritional foods category.

It's also taking price hikes to compensate for the rise in oil prices and maintain its profit margin.

To know more about Marico, check out its factsheet.

Should you invest in FMCG stocks?

Though the FMCG sector is considered an evergreen sector, it's subject to inflationary pressures.

With rising prices of crude oil and other raw materials, companies in this sector are facing a contraction in their profit margins.

To add to this, a ban on palm oil export in Indonesia might affect the supply and margins in the short term.

However, most FMCG companies think this ban wouldn't last long and the situation might soon stabilise.

Moreover, FMCG companies are trying to use alternatives to palm oil in their products if the ban continues for a long time.

Nevertheless, investors can consider adding these stocks to their watchlist provided thorough due diligence is carried out.

It's important to check the fundamentals and valuations of a company along with the macro-economic factors before making a decision.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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