Last Updated – Sept 2022
In this article, we will cover:
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% in revenues of FMCG companies and 45% is contributed by the Rural segment. Consumer Staples has underperformed over the last couple of years largely battered by unprecedented and broad-based material cost increases. The COVID-induced restrictions imposed in urban centers and disruptions to the modern trade (MT) channel also led to lower premium product sales. In recent months, Modern trade has rebounded to near normalcy in tandem with the gradual lifting of COVID-led restrictions. However, the ongoing geopolitical crisis has led to a further build-up of material cost pressures, which has been quite steep in some cases. With several companies having already taken sharp price hikes until Q3FY22, slowing rural and bottom-of-pyramid demand would make them wary of passing on the recent sharp commodity cost increases.
Summary Table of the best FMCG Stocks to buy now
|Sr.No||Company Name||BSE Scrip Code||NSE Scrip code||CMP – Sept 2022||Rating||Market Cap||Industry|
|1||HUL||500696||HINDUNILVR||2541.7||5||492098||Household & Personal products|
|2||Nestle India||500790||NESTLEIND||18619.8||5||167064||Food & Beverages|
|3||ITC||500875||ITC||331.2||4||291252||Cigarettes & FMCG others|
|4||Britannia Industries||500825||BRITANNIA||3656.2||3||77075||Food & Beverages|
|5||Dabur India||500096||DABUR||550.4||4.5||96799||Household & Personal products|
|6||Godrej Consumer Products Ltd||532424||GODREJCP||895.9||2||72547||Household & Personal products|
|7||Marico Ltd||531642||MARICO||511.9||4.5||65613||Household & Personal products|
|8||Colgate Palmolive||500830||COLPAL||1576.3||5||40757||Household & Personal products|
|9||Procter & Gamble Hygiene Healthcare Ltd||500459||PGHH||14716.6||4.5||50053||Household & Personal products|
|10||Gillette India||507815||GILLETTE||5325.0||3||16419||Household & Personal products|
|11||Emami Ltd||531162||EMAMILTD||493.5||3||21512||Household & Personal products|
|12||Jyothy Labs Ltd||532926||JYOTHYLAB||181.6||2||5152||Household & Personal products|
|13||Bajaj Consumer Care Ltd||533229||BAJAJCON||164.0||5||2420||Household & Personal products|
|14||Varun Beverages||540180||VBL||1083.8||0.5||39421||Food & Beverages|
|15||Tasty Bites Eatables Ltd||519091||TASTYBITE||11900.0||0.5||2971||Packaged Foods|
|16||Jubilant Foodworks||533155||JUBLFOOD||618.7||1||37804||Quick Service Restaurant|
|17||WestLife Development Ltd||505533||WESTLIFE||690.7||0.5||7324||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. For example, during the lockdowns 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 the 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 parameters which you need to look at are Same Store Sales Growth (SSSG %) which is important for companies engaged in quick restaurant business. For eg, Jubilant Foodworks, Westlife Development, Burger King India.
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% in Infant Cereals), Beverages (Nescafe 51%), prepared dishes (Instant Pasta Maggi -69%) 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 46% of revenue generated from milk and nutrition products (dairy products and weaning foods), 12% from beverages (instant coffee, iced tea, and other beverage vending mixes), 31.8% from prepared dishes and cooking aids (Maggi range), and 14.8% from chocolates and confectionery (including Kit Kat and Munch). Nestle India is currently trading at PE of 89.2x which is higher than the Industry PE of 59.9x indicating the company is trading at much premium valuations.
Nestle S.A, Switzerland’s (parent company of Nestle India) 46% revenues comes from Americas region, 29% revenues come from European, Middle east and North Africa region, and 26% revenues comes from Asia, Oceania and sub-Sahara region. Nestle India is currently trading at a PE of 89.2x which is higher than the Industry PE of 59.9x indicating the company is trading at much premium valuations.
Nestle S.A holds 62.7% stake in the India business and is one of the world’s largest players in the Food and Beverage sector. Nestle India 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 13.6% in the last 5 years. It has also been maintaining a healthy ROE and ROCE of 93% and 126% respectively. Moreover, it is virtually debt free with a Debt to Equity ratio of 0.13. It has also been maintaining effective average operating margins of 21.2%.
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 but the ongoing commodity inflation due to the Russia-Ukraine crisis could be a cause of concern for the company. The company has increased the prices of some of its products by 1-2%, but the company might be reluctant to increase the prices further as the overall demand scenario in the coming time could be tepid.
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 terms of market share in most categories it is present in. Its product portfolio includes home care (34% of Revenues), Beauty & Personal care products (44% of Revenues), Foods and Refreshments (19% of Revenues). The company is a subsidiary of Unilever Plc located in the UK that holds a 61.9% 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 7.8% and its PAT has grown at a CAGR of 14.4% in the last 5 years. HUL has been maintaining a robust ROE and ROCE of 53.8% and 74.4% respectively over the past 5 years. The company has been maintaining adequate liquidity and has been paying dividends. HUL’s largest merger in the FMCG sector with GlaxoSmithKline Consumer Healthcare ltd has started showing synergies across its food and beverages brands, by acquiring popular brands like Horlicks, Boost HUL has strengthened 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. Any delay in demand recovery of discretionary space could impact the company’s near-term performance. The company is trading at a PE of 71.4x which currently looks fairly valued as compared to its industry PE of 69.4x.
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 (Other than Cigarettes) and it contributes 31% of the company’s revenues as of FY21 (up from 26% in FY20) and has consistently lowered its focus on its cigarettes business which used to contribute 62.7% of its revenues back in 2015 which is currently reduced to 42% as of FY21. This clearly shows that ITC has shifted its focus on growing its FMCG business. The company has also grown its presence in Agri-business (26% of revenues), Paper & Packaging (12% of revenues) and Hotels (1% 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. 33,000 Cr as on March 31, 2021. The company has maintained a healthy dividend yield of 4.5% and has consistently rewarded its shareholders.
Due to COVID-19 led lockdowns, the company’s Hotels business was impacted the most as occupancy was down due to severe travel restrictions. But as the economy starts to revive, the near-term outlook is expected to start improving. On the other hand, FMCG others and Cigarettes business showed good resilience, Its FMCG others segment has grown 15% YoY in FY21 and its agribusiness also grew at a stellar rate of 23% YoY in FY21 offsetting de-growth in its Cigarette and Hotels Segment sales.
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 green field 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 23.7 lakh outlets with rural distributors reaching 23,500 (No of dealers) in FY21 from mere 8,000 dealers in 2016. The company also has plans to enter new food categories and has recently launched new products such as cream wafers (10% market share), baked salted snacks, milk shakes and croissants and it re-launched its popular biscuit brand ‘Milk Bikis’ (Milk + Glucose) as it plans to compete popular brand ‘Parle-G’ and eyes a big pie in glucose biscuits segment. Its sales and PAT have grown at a healthy CAGR of 9.36% and 17.5% respectively for the last 5 years. The company has also maintained a healthy ROE and ROCE of 35.9% and 44.3% 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 51x which is lower than its industry PE of 59.3x indicating that the company is trading at 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 has made few acquisitions in the past few years. With acquisition of Darling Group – leader in hair extension in Africa, it has further strengthened its foothold 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 10.4% and its Sales have grown at a CAGR of 5.54% in the last 5 years. Also it’s ROE and ROCE have grown at a healthy rate of 24.4% and 20.3% over the past 5 years. Godrej Consumer has a presence in Asia (India and others 54%), Africa (23%), Indonesia (17%). 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. On the risk front, due to its international presence, the company may face some risk of geopolitical events such as a change in government and local unrest that could affect its operations. The company is trading at PE of 39.7x which looks expensive as compared to the Industry valuation of 30.7x.
Watch our video on how to analyse and pick FMCG stocks for investments
In order to get an exposure to best Indian FMCG stocks, you would need a total of Rs. 55956/- for the below curated portfolio as of 10th March, 2022.
|Company Name||Weightage||CMP – Sept 2022||Quantity||Total|
|Godrej Consumer Products Ltd||25%||895.9||17||15,229.45|
The below table covers some of the most important factors while evaluating FMCG stocks
|Sr.No||Company Name||BSE Scrip Code||NSE Scrip code||CMP – Sept 2022||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||2541.7||5||492,098||Household & Personal products||14.4||7.88||1.49||6.33||0.02||56.0||29.20||39.2||24.6||9.66|
|2||Nestle India||500790||NESTLEIND||18619.8||5||167,064||Food & Beverages||13.6||9.21||1.16||4.22||0.13||82.3||93||126||21.2||11.6|
|3||ITC||500875||ITC||331.2||4||291,252||Cigarettes & FMCG others||7.08||4.68||4.65||2.16||0||19.2||21||28.6||34.1||4.89|
|4||Britannia Industries||500825||BRITANNIA||3656.2||3||77,075||Food & Beverages||17.5||9.36||4.91||8.52||1.57||51.6||46.9||45.3||15.7||5.67|
|5||Dabur India||500096||DABUR||550.4||4.5||96,799||Household & Personal products||7.47||7.33||0.88||2.34||0.1||52.7||23.7||27.3||20.9||8.98|
|6||Godrej Consumer Products Ltd||532424||GODREJCP||895.9||2||72,547||Household & Personal products||10.4||5.5||0||2.95||0.2||39.8||20.1||19.7||20.5||6.01|
|7||Marico Ltd||531642||MARICO||511.9||4.5||65,613||Household & Personal products||10.8||5.99||1.85||3.06||0.09||53.5||36.7||44||17.7||6.9|
|8||Colgate Palmolive||500830||COLPAL||1576.3||5||40,757||Household & Personal products||11.4||4.59||2.5||5.03||0.06||38.1||75.1||92||30.7||8.01|
|9||Procter & Gamble Hygiene Healthcare Ltd||500459||PGHH||14716.6||4.5||50,053||Household & Personal products||9.45||9.02||1.07||5.16||0||87.2||69.8||93.8||21.7||13.6|
|10||Gillette India||507815||GILLETTE||5325.0||3||16,419||Household & Personal products||7.62||7.74||0.72||2.75||0||57.1||36.4||51||20.5||7.74|
|11||Emami Ltd||531162||EMAMILTD||493.5||3||21,512||Household & Personal products||1.16||4.08||2.53||3.49||0.06||37.1||24.2||28.6||29.9||6.73|
|12||Jyothy Labs Ltd||532926||JYOTHYLAB||181.6||2||5,152||Household & Personal products||20.6||3.69||2.83||4.12||0.12||33.6||15||18.2||12.2||2.4|
|13||Bajaj Consumer Care Ltd||533229||BAJAJCON||164.0||5||2,420||Household & Personal products||-1.07||2.82||6.03||6.33||0||12.7||30.2||36.2||22.3||2.67|
|14||Varun Beverages||540180||VBL||1083.8||0.5||39,421||Food & Beverages||71.5||18||0.27||3.39||0.6||57.3||18.3||18||18.8||4.51|
|15||Tasty Bites Eatables Ltd||519091||TASTYBITE||11900.0||0.5||2,971||Packaged Foods||19.5||14.5||0.02||3.96||0.56||152.0||21.2||18||10.8||7.53|
|16||Jubilant Foodworks||533155||JUBLFOOD||618.7||1||37,804||Quick Service Restaurant||18.8||6.3||0.21||7.67||1||84.8||18||16.3||25||8.54|
|17||WestLife Development Ltd||505533||WESTLIFE||690.7||0.5||7,324||Quick Service Restaurant||–||3.42||0||9.62||2.32||–||-17||-2.3||11.7||5.08|
Our Collection of Best Stocks to Buy Other links you may find useful:
- How You Can Pick the Best Stocks to Buy Today
- Our Collection of Best Stocks to Buy
- Best Penny Stocks to Buy now in India
- Best Intraday Stocks
- 26 Articles on Best stocks to buy
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