Last Updated – December 2020
In this article, we will cover:
– Overview of the FMCG sector in India
– A comprehensive and well-researched list of the best FMCG stocks to buy now
– Factors to consider while picking the best FMCG stocks to buy now
– A model portfolio with optimal exposure to the best Indian FMCG stocks
– A detailed table consisting of all the parameters based on which the FMCG stocks were evaluated in order to collate the list of the best FMCG stocks to buy now
Overview of the FMCG sector in India
Fast Moving Consumer Goods (FMCG) is the 4th largest sector in the Indian economy. It is considered as a barometer of consumer demand in every country. This sector is mainly divided into three categories Food & Beverages (19%), Healthcare (31%), Household & Personal care (50%). Growing awareness, easier access and changing lifestyles have been the key growth drivers for the sector. The urban segment contributes around 55 percent in revenues of FMCG companies and 45% is contributed by Rural segment. However, demand for quality goods and services have been going up in rural areas of India on the back of improved distribution channels of manufacturing companies and the recent COVID-19 led shutdown which has caused hoarding of essential goods in fear of timely supplies. Semi-urban and rural segments are growing at a rapid pace and FMCG products account for 50 per cent of total rural spending. FMCG sector’s revenues are estimated to reach US$ 103.7 billion in 2020. Also Retail market in India is estimated to reach US$ 1.1 trillion by 2020, with modern trade expected to grow at 20-25%, likely to boost revenue of FMCG companies.
Summary Table of the best FMCG Stocks to buy now
|Sr.No||Company Name||BSE Scrip Code||NSE Scrip code||CMP (4th Dec)||Rating||Industry|
|1||HUL||500696||HINDUNILVR||2,188.2||5||Household & Personal products|
|2||Nestle||500790||NESTLEIND||17,825.9||5||Food & Beverages|
|3||ITC||500875||ITC||198.2||5||Cigarettes & FMCG others|
|4||Britannia Industries||500825||BRITANNIA||3,648.2||4||Food & Beverages|
|5||Dabur India||500096||DABUR||502.5||4.5||Household & Personal products|
|6||Godrej Consumer Products Ltd||532424||GODREJCP||709.7||1||Household & Personal products|
|7||Marico Ltd||531642||MARICO||394.9||4||Household & Personal products|
|8||Colgate Palmolive||500830||COLPAL||1,541.2||5||Household & Personal products|
|9||Procter & Gamble Hygiene Healthcare Ltd||500459||PGHH||10,752.1||4||Household & Personal products|
|10||Gillette India||507815||GILLETTE||5,777.2||3||Household & Personal products|
|11||Emami Ltd||531162||EMAMILTD||417.8||0.5||Household & Personal products|
|12||Jyothy Labs Ltd||532926||JYOTHYLAB||145.8||1||Household & Personal products|
|13||Bajaj Consumer Care Ltd||533229||BAJAJCON||199.8||5||Household & Personal products|
|14||Varun Beverages||540180||VBL||836.3||1||Food & Beverages|
|15||Tasty Bites Eatables Ltd||519091||TASTYBITE||11,200||1||Packaged Foods|
|16||Jubilant Foodworks||533155||JUBLFOOD||2,562.3||2||Quick Service Restaurant|
|17||WestLife Development Ltd||505533||WESTLIFE||430.6||0.5||Quick Service Restaurant|
Factors to consider while picking the best FMCG stocks to buy now
- Diversity in product portfolio: It is important to identify the product mix of a FMCG company as it determines the categories in which that player is operating. A company present in the segment such as toothpaste, soaps, and detergents which come under essential categories tend to have stable sales whereas companies present in discretionary segments such as perfumes, cosmetics, etc often report declining sales during times of recession like we are facing now due to COVID-19 lockdowns. You should always prefer companies having a diverse product-mix catering to different needs. Also, presence in one or two niche categories where competition is fairly low can strengthen its market position as it can be a price setter.
- Brand equity and Market share: A company which is successful in gaining high market share has several advantages. It ensures a stable relationship and long drawn contracts with distributors. If a company has high market share in a product it does not need to offer very high discounts since this gets compensated for by the higher volumes. So find a company which has highest market share in one or two product categories for eg, Nestle has 96% market share in Infant Cereals- Cerelac in its Milk Products & Nutrition segment consists of 46% of its total revenues. To acquire this kind of market share a company needs to create Brand equity for that product, it is the degree of consumer loyalty that a company’s product maintains. If brand equity/loyalty is strong consumers tend to be willing to pay a high price for the product and will be reluctant to switch to other competing brands.
- Strong Distribution Network: Every FMCG company keeps a close eye on changing consumer preferences and trends and companies change their marketing strategies accordingly. In India, it is important to have a good rural and urban sales mix as it may help even out any uncertain impact on one segment for eg, due to the lockdown most of the urban areas were shut as it was impacted the most by the spread of COVID-19 but rural areas comparatively had lesser infections so companies which had better distribution reach in the rural areas gained during this time. Companies having wider dealer networks enhance the reach of their products which is an advantage in this business. Also companies with international presence have an advantage especially during downtrends in the domestic market.
- Supply chain management: A company’s ability to offer a product when the consumer wants to purchase is likely the most important factor that drives sales and also promotes consumer loyalty. It also motivates wholesalers and retailers to stock the product before the seasonal demand starts. FMCG players have invested in supply chain related IT initiatives recently to enhance their inventory management and collection efficiencies. Due to the shutdown in the country all the supply chains were disrupted due to migration of workers and only companies which had invested robustly in automated supply chains were less impacted. E-commerce channels/Omni-channels are new emerging trends and even Top FMCG players have started investing in them.
- Apart from all this investors should also check some generic parameters like Operating margin growth (%) of the company for last 3 and 5 years and also check debt to equity ratio of the company, usually FMCG companies do not require much debt so debt to equity has to be below 0.50. Some other paramters which you need to look at are Same Store Sales Growth (SSSG %) this is important for company engaged in quick restaurant business. For eg, Jubilant Foodworks, Westlife Development.
Nestle India is a leading player in the Indian FMCG industry with an established market position in most of its product categories. The company is a pioneer in the culinary segment with a range of products under the Maggi brand. Nestle stands as a market leader in 85% of its product portfolio like milk products and nutrition (96.5% in Infant Cereals), beverages (Nescafe 51%), prepared dishes (Instant Pasta Maggi -74%) and cooking aids (Nestle EveryDay 44%), and chocolate and confectionery (63%). In these segments, Nestle benefits from its strong cash generating and well-established brands. The company has a leadership position in seven out of eight categories and has been able to maintain its share across categories despite the increasing competition.
Nestle India also has a very diversified revenue profile, with 47% of revenue generated from milk and nutrition products (dairy products and weaning foods), 10% from beverages (instant coffee, iced tea and other beverage vending mixes), 29% from prepared dishes and cooking aids (Maggi range), and 14% from chocolates and confectionery (including Kit Kat and Munch).The diversified revenue profile mitigates risks as reflected in healthy performance during the ban on noodles. Nestle India is currently trading at PE of 86.5x which is higher than the Industry PE of 74.7x indicating the company is trading at much premium valuations.
It is a subsidiary of Switzerland based Nestle S.A which holds 62.7% stake in the India business and is one of the world’s largest player in the Food and Beverage sector. It enjoys access to its parent’s proprietary technology and strong research and development capabilities which is a big advantage for the brand. The company’s PAT has grown at a CAGR of 10.7% in the last 5 years and has continuously outperformed its peers. It has also been maintaining healthy ROE and ROCE of 50.71% and 75.38% respectively in the last 3 years. Moreover it is a virtually debt free company with a Debt to Equity ratio of 0.03. It has also been maintaining effective average operating margins of 20.74% in the last 5 years.
Nestle India is exposed to the increasing and fierce competition in the domestic FMCG segment with the entry of new players, including multinationals, in various divisions such as instant noodles, packaged foods, beverages, chocolates and confectionery. The competition is further increasing due to aggressive product launches, evolving consumer preferences and strong marketing strategies adopted by the players. Nestle has effectively overcome the challenges faced in terms of distribution during the COVID-19 led pandemic and has also announced a Capex of Rs.2,600 cr over the next 3-4 years to expand its manufacturing capacities across India. The demand for In-home consumption remains strong and further uptick in demand in the out-of home consumption categories will help Nestle maintain double-digit sales and volume growth.
HUL is one of the largest FMCG companies in India. Five of its brands generate annual turnover of over Rs.2,000 Cr each and 7 brands generate annual turnover of over Rs.1,000 Cr each. With over 40 brands spanning 12 distinct categories such as personal wash, fabric wash, skin care, hair care, oral care, deodorants, colour cosmetics, beverages, ice creams, frozen desserts and water purifiers, HUL is part of the everyday life of millions of consumers across India. The company’s brands hold the top two spots in most categories it is present in, in terms of market share. Its product portfolio includes home care (27% of Profits), Beauty & Personal care products (58% of Profits), Foods and Refreshments (15% of Profits). The company is a subsidiary of Unilever Plc located in the UK that holds a 67% stake in HUL, it’s the world’s largest consumer goods company present across 190 countries.
HUL’s brands have high visibility and have sustained leadership over decades, backed by an extensive distribution network and strong advertising and marketing support. HUL has been leveraging its distribution strengths to adapt its channel strategy for its products and market segments.
HUL is the first consumer company to cross Rs.5 lakh Cr Market capitalization making it the highest market cap company in the FMCG sector. The company’s sales have grown at a CAGR of 4.4% and its PAT has grown at a CAGR of 10.25% in the last 5 years. HUL has been maintaining healthy ROE and ROCE of 81.97% and 113.67% respectively over the past 3 years. The company is virtually debt free and has been maintaining adequate liquidity with the current cash levels of around Rs.5,000 Cr. HUL had recently completed the largest merger in the FMCG sector with GlaxoSmithKline Consumer Healthcare ltd acquiring popular brands like Horlicks, Boost to strengthen its Food & Refreshments portfolio.
Apart from HUL’s robust fundamentals, enviable business model and debt-free balance sheet, its extensive distribution network, strong brand equity and vast product mix with a large share of essential products makes the company standout during the times of crisis. It is also expected to gain market share from weaker players in the current situation. Slowdown in the discretionary category due to COVID-19 crisis could impact the company in the near-term as the company’s portfolio is more skewed towards Beauty & Personal care and with lockdowns demand for those products has come down drastically. So if the current scenario sustains for a longer period of time it could be the biggest risk for the company. The company is trading at a PE of 76.5x which is a tad bit higher than its industry PE of 74.7x.
ITC has evolved from a tobacco company into a well-diversified business conglomerate with a strong presence in other Fast-moving consumer goods (FMCGs), paperboards, printing and packaging, agricultural commodities, hotels, branded packaged foods, personal care products, branded apparel, stationery, safety matches, agarbatti. It has also added luxury chocolates, ghee, dairy and frozen food products to its branded packaged foods segment. With ITC’s latest acquisition of Sunrise Foods Pvt Ltd it is expected to strengthen its presence in the eastern market in the spices category.
ITC has over time grown its presence in the FMCG segment and it contributes 26% of the company’s revenues and has consistently lowered its focus on its cigarettes business which used to contribute 62.7% of its Revenues back in 2015 and is currently reduced to 42%. This clearly shows that it is more focused on growing its FMCG business. The company has also grown its presence in Agri-business (15.6% of revenues), Paper & Packaging (12% of revenues) and Hotels (3.28% of revenues). Liquidity of the company is exceptionally strong because of cash and liquid investments (bonds, debentures, mutual funds, and bank deposits) of over Rs. 35,600 Cr as on March 31, 2020. The company has also maintained a healthy dividend yield of 5.2% and has consistently rewarded its shareholders
Due to COVID-19 led lockdowns, the company’s Hotels business was affected the most as sales were down due to severe travel restrictions. So the near-term outlook for this sector looks weak. On the other hand, FMCG others and Cigarettes business showed good resilience amid difficult quarters.
Britannia is one of the front-runners in the Indian biscuit industry with a market share of over a third in value terms. The company has a diversified portfolio of biscuits across all seven categories like glucose, marie, cookies, crackers, cream, milk, and health. Also, it has strong brands across its product portfolio including Good Day, Tiger, Marie, Nutri choice and Milk Bikis. The strong market position is supported by a wide distribution network in both rural and urban areas. Britannia has also set up a greenfield unit in Nepal which is operational now. Further, the company has commissioned additional lines for cakes and biscuits at Ranjangaon, in Pune.
Over fiscal 2014 to fiscal 2020, the direct reach of the company has tripled to 21.7 lakh outlets. The company also has plans to enter new food categories and has recently launched new products such as cream wafers, baked salted snacks, milk shakes and croissants. Its sales and PAT have grown at a CAGR of 8.10% and 19% respectively. The company has also maintained healthy ROE and ROCE of 33.2% and 46.09% respectively over the past 3 years. Britannia intends to become a global foods company and has set up strategic business units for adjacent bakery, dairy and international business. The competitive intensity has been fairly high in terms of launching new product launches during the last few quarters in order to capitalise on the market share. Britannia is currently trading at PE of 51.1x which is lower than its industry PE of 74.7x indicating that the company is trading at fairly attractive valuations.
Godrej Consumer Products Ltd (GCPL):
GCPL has a portfolio of strong brands in India as well as in International markets. GCPL holds the market leadership position in household insecticide and hair colour segments in India and is the second largest player in the soaps category. It is a market leader in all the segments where it operates in household insecticide, air fresheners and wet tissues in Indonesia. In Africa, it is the market leader in dry hair extensions (hair braids), and ethnic hair colour segments. It is also the second-largest toilet soap marketer after HUL with a 10-12% market share in primary brands such as Godrej No.1 and Cinthol. To expand its geographical presence, GCPL had made few acquisitions in the past few years. With acquisition of Darling Group – leader in hair extension in Africa, it has further strengthened its stronghold in the continent. The dominant leadership position across various segments provides pricing power in those segments which helps the company maintain its profitability.
The company has grown its Profits at a CAGR rate of 11.4% in the last 5 years. Also it’s ROE and ROCE have grown at a healthy rate of 28% and 30% over the past 3 years. Godrej Consumer has a presence in Asia (India and others 54%), Africa (24%), Indonesia (15%) The growth in revenue from international operations has been driven primarily through acquisitions. GCPL has a demonstrated track record of acquiring strong local brands and generating synergies by combining operations of the acquired entities to drive scale and profitability. Due to its International presence, the company may face some risk of geopolitical events such as change in government and local unrest that could affect operations. The company is trading at PE of 47x which is lower than its Industry valuation of 74.7x indicating it is trading at lower valuations.
Watch our video on how to analyse and pick FMCG stocks for investments
In order to get exposure to the best Indian FMCG stocks, you would need a total of Rs. 49,633.4 for the below curated portfolio as of Dec 4, 2020.
|Company Name||Weightage||CMP (as of 4th Dec)||Quantity||Total|
The below table covers some of the most important factors while evaluating FMCG stocks such as return ratios including RoE and RoCE, operating margins, sales and earnings growth and market cap among others.
|Sr.No||Company Name||BSE Scrip Code||NSE Scrip code||CMP||Rating||Market Cap||Industry||5 Yr PAT Growth (%)||5 Yr Sales Growth(%)||Dividend Yield (%)||Inventory T/O Ratio||Debt/Equity||P/E (x)||ROE (%)||ROCE (%)||OPM%||Price/Sales (x)|
|1||HUL||500696||HINDUNILVR||2,188.20||5||5,56,986 Cr||Household & Personal products||13.3||4.5||1.1||6||0||76.5||85.7||117||25||13.3|
|2||Nestle India||500790||NESTLEIND||17,825.90||5||1,79,192 Cr||Food & Beverages||10.7||4.7||0.9||4.2||0||86.5||70.3||98.2||24||13.7|
|3||ITC||500875||ITC||198.2||5||2,65,666 Cr||Cigarettes & FMCG others||10||4.9||4.7||2.2||0||18.9||25.3||32.6||34||5.4|
|4||Britannia Industries||500825||BRITANNIA||3,648.20||4||91,011 Cr||Food & Beverages||20||8.1||2.2||9.3||0.3||51.1||32.5||37.4||18.5||7.2|
|5||Dabur India||500096||DABUR||502.5||4.5||90,722 Cr||Household & Personal products||8||3||0.6||2.4||0||59.4||24.9||27.9||21||10.4|
|6||Godrej Consumer Products Ltd||532424||GODREJCP||709.7||2||73,956 Cr||Household & Personal products||10||3.5||0.8||2.7||0.2||47||20.5||18.6||22.1||7.3|
|7||Marico Ltd||531642||MARICO||394.9||4||53,483 Cr||Household & Personal products||13.2||5||1.6||2.3||0.1||47.8||35.2||43.1||20.8||7.4|
|8||Colgate Palmolive||500830||COLPAL||1,541.20||5||44,205 Cr||Household & Personal products||8||3||1.7||5.9||0||50.5||53.7||67.4||28.5||9.7|
|9||Procter & Gamble Hygiene Healthcare Ltd||500459||PGHH||10,752||5||37,034 Cr||Household & Personal products||4||5||0.9||5.5||0||67.3||42.1||58.3||24||11.7|
|10||Gillette India||507815||GILLETTE||5,777||4||19,539 Cr||Household & Personal products||7.8||-2||0.8||2.9||0||74.2||27.3||37.9||22.7||11.3|
|11||Emami Ltd||531162||EMAMILTD||417.8||0.5||19,007 Cr||Household & Personal products||-12||5||1.9||3.9||0.1||56.8||15.1||18.2||28.8||7.4|
|12||Jyothy Labs Ltd||532926||JYOTHYLAB||145.8||1||5,336 Cr||Household & Personal products||7||2||2.1||4.4||0.1||28.8||12.9||13.7||15.5||2.9|
|13||Bajaj Consumer Care Ltd||533229||BAJAJCON||199.8||5||2,997 Cr||Household & Personal products||-2||1||1||4.4||0||17||32.7||39||24||3.8|
|14||Varun Beverages||540180||VBL||836.3||1||26,024 Cr||Food & Beverages||66.2||22.7||0.6||4.8||0.7||117||17.7||17.6||18.1||4.1|
|15||Tasty Bites Eatables Ltd||519091||TASTYBITE||11,200.00||0.5||2,910 Cr||Packaged Foods||31||21||0||5.5||0.4||84.4||27.8||28.3||10.9||7.7|
|16||Jubilant Foodworks||533155||JUBLFOOD||2,562.30||2||34,744 Cr||Quick Service Restaurant||17.4||13.3||0.2||13.5||1.5||237||25||29||21||10.7|
|17||WestLife Development Ltd||505533||WESTLIFE||430.6||0.5||6,624 Cr||Quick Service Restaurant||11||15||0||15.9||2||–||-2.2||7.1||5.9||6.1|
Our Collection of Best Stocks to BuyOther links you may find useful:
You can check the live prices and trade India’s best large cap stocks at the lowest brokerage with SAMCO, India’s leading discount brokerage. Open a Free Demat and Trading Account today!