Helping You Build Wealth With Honest Research
Since 1996. Read On...

MEMBER'S LOGIN

MEMBER'S LOGINX

     
Invalid Username / Password
   
     
   
     
 
Invalid Captcha
   
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Revealed
India's Third Giant Leap

This Could be One of the Biggest Opportunities for Investors




Important: We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
By submitting your email address, you also sign up for Profit Hunter, a daily newsletter from Equitymaster
covering exciting investing ideas and opportunities in India.

AD

Will FMCG continue to outperform?
Fri, 11 Oct Pre-Open

The BSE FMCG index closed 9% higher in Q1FY14, thus outperforming the BSE-Sensex, which gained 3% during the same period. The sector as a whole has got re-rated over the last few quarters on the back of the companies' ability to sustain a strong growth momentum in both revenues & profits despite the ongoing global economic slowdown. FMCG companies have always been considered as defensive bets as investors prefer them during uncertain economic conditions.

But the results of the previous quarter showed some cracks appearing in the robust sector which could threaten the performance of the companies in this sector. Domestic revenues of Indian FMCG players grew just 10.6% in Q1FY14 – the slowest in the past 16 quarters. It needs to be underscored that the revenue slowdown was largely due to deceleration in revenue growth of the non-food segment. Furthermore, the nominal GDP growth in June'13 quarter was also the slowest in the past 16 quarters.

The sector faces three key challenges:

  1. Economic slowdown – Weak macro parameters, slowing GDP growth, high inflation and weak consumer confidence due to anemic job market / salary hikes have impacted discretionary consumption. The slowdown is more pronounced in urban markets than in rural. The recent Rupee depreciation has raised the threat to gross margins due to 20-50% import component in the raw material basket for consumer companies.

  2. Promotional offers are on rise - Consumer offers and trade schemes have increased over past few months. FMCG firms are extending their offers beyond earlier intended period (e.g. 4 months vs. 1-2 months planned earlier).While such promotional efforts are done to win back consumers, it will have a bearing on profitability.

  3. Moving away from popular price points (PPP) - Popular price point of Re 1, Rs 5 and Rs 10 are getting increasingly untenable for FMCG players on account of rising cost inflation> and non-feasibility of further grammage reduction in these low priced SKUs. In the past, departure from popular price points had impacted demand in various brands.

FMCG companies have traded at 25x one-year forward earnings multiple in the past five years and at 26x one year forward earnings multiple in FY11 and in FY12. If the performance in the upcoming result season (for the quarter ended September) remains muted, it could possibly trigger some correction in the valuations of FMCG companies on the bourses; all this given the high expectations from investors.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

View all commentaries | Archives

Read the latest Market Commentary


Equitymaster requests your view! Post a comment on "Will FMCG continue to outperform?". Click here!

  
ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

PREMIUM PRODUCTS
QUICK LINKS
POPULAR TOPICS
TRENDING TOPICS
FREE NEWSLETTERS
EQUITYMASTER SUPPORTS
  • HelpYourNGO
  • You Tube
  • Linkedin
  • Twitter
  • Telegram
  • Google Play

Copyright © Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited).

Whitelist | Refer | Terms | Privacy | Contact | About | Sitemap

Phone +91-9136015013

Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Email: info@equitymaster.com. Website: www.equitymaster.com.
CIN:U74999MH2007PTC175407

Name of the Compliance & Grievance Officer: Ms Sonal Ramachandran
Telephone: +91-22-61434003 | Email: compliance@equitymaster.com

LEGAL DISCLAIMER:
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

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.

Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst) bearing Registration No. INH000000537 (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, Canada or the European Union countries, 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.