FMCG: Where to from here?

The Indian stockmarket has exhibited weakness in the past two weeks and the negative sentiments across global markets have also played a significant role in contributing to this weakness. Having said that, even in the three-month period between December 2006 and March 2007, the Sensex declined by 8%. In this article, we shall take a look at the stocks in the FMCG sector that have managed to perform better than the BSE FMCG index during the above mentioned period.

FMCG: The top gainers from Dec 2006 to March 2007

Company	Price on	Price on	%
	Mar 06, 2007 (Rs)	Dec 01, 2006 (Rs)	Change
BSE Sensex	12730	13845	-8.1%
BSE FMCG	1699	2051	-17.2%
Britannia	1275	1135	12.3%
Marico	55	53	3.8%
Dabur	90	98	-8.2%
ITC	162	188	-13.8%
Colgate	306	390	-21.5%
HLL	172	240	-28.3%

Britannia: Britannia has been the top gainer during the period with gains of 14%. This can be attributed to the strong revenue growth of 31% YoY during the 3QFY07. This was the highest in the past five quarters, which has been aided by the company's strong volume growth. The company's market share had come under pressure in recent times. However, it is clawing its way back by making new launches, focusing on better distribution and newer formats, which has been visible from its strong topline performance over the last few quarters. Though its margins, in recent quarters, have been severely dented by a huge rise in input prices, we believe the reaction to this has been unreasonably pessimistic and that once the input cost pressures ease, margins would improve. This would translate the buoyant topline growth into equally strong bottomline numbers.

Marico: Marico rose by 9% during this period, being the second gainer on the list. The company continued with its strong topline performance, with all business segments namely, domestic FMCG, international FMCG, Kaya Skin Solutions and Sundari recording high growth. It's strategy of focusing on growth, sustainability and profitability has paid off well and has been reflected in its 3QFY07 numbers. It has invested in brand building and advertising to strengthen its established brands and to support new ones, which will help the company strengthen its growth prospects going forward.

Dabur: Though Dabur lost ground from December 2006 to February 2007 declining by 8%, the fall was much lesser than the FMCG index and that of most of its peers. The stock continued to ride on the back of strong growth across all its core categories. The company is focusing on increasing its presence across newer regions. Also, it is expanding its presence in the food segment, which is growing at a very health pace.

To sum up...
The outlook of the sector from a long-term perspective looks good. With increasing income, changing lifestyles, shift towards higher end products, the topline performance of most of these companies is expected to be strong going forward. Also, the companies are entering into newer regions and categories they were not earlier present, which will play a strong role in boosting their performance. However, concerns remain with regards the increased competition, inflation and margin pressure. In such a scenario, those companies focusing on faster innovations, introducing new higher end products, increased distribution and cost efficiency will have the upper edge. Taking into account all these factors, though the stocks have corrected in recent times, investors need to give due consideration to valuations and adopt a stock-specific strategy while investing in the sector.

Courtesy:outlookmoney.com

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