Staying invested in Pharmaceutical, FMCG and banking stocks since 2007 seems to have reaped good returns for the investors. Data on the BSE-500 stocks shows that about 10 per cent (55 stocks) have given more than 100 per cent returns, while 20 per cent (99 stocks) have given returns of over 50 per cent, between mid-October 2007 and end-June 2011.
The FMCG sectors dominate the list of these companies fortifying the Indian consumption story. Of the 99 stocks that gave more than 50 per cent, 56 belonged to the pharmaceuticals, FMCG, capital goods and banking sectors, with the FMCG companies dominating the list at 19. In an economy that is about 70-80 per cent driven by consumption demand, this is hardly surprising, say market analysts.
India’s FMCG sector is the fourth largest sector in the economy and creates employment for more than three million people in downstream activities. Its principal constituents are Household Care, Personal Care and Food & Beverages. The total FMCG market is in excess of $ 30 billion. It is currently growing at double digit growth rate and is expected to maintain a high growth rate. FMCG Industry is characterized by a well established distribution network, low penetration levels, low operating cost, lower per capita consumption and intense competition between the organized and unorganized segments.
Growth Prospect
· Large Market
· Increase is spending pattern
· Changing Profile and Mind Set of Consumer-There is a change in the mind set of the Consumer and now looking at “Money for Value” rather than “Value for Money”
All Indian companies which had high exposure to exports or imports and had a high correlation with the global economies have been affected greatly. But the India-centric companies have done well as is evident from the performance of the FMCG companies' stocks
FMCG would be the long-term defensive stocks, while the auto, cement, realty and infrastructure sector, among others would see more of a cyclical pattern, said experts.
ITC
Outlook and valuation: We expect ITC to report a top line of `24,706cr in FY2012E and `29,294cr in FY2013E, registering a CAGR of ~18% over FY2011–13E. Growth would be driven by the company’s diversified business model and ability to invest in growing businesses. In terms of earnings, we expect the company to report a `17.5% CAGR over the same period, backed by good performance by all businesses. At the CMP of `191.6, the stock is trading at 23.4x FY2013E EPS. I maintain a Neutral rating on the stock.
Marico
Outlook and valuation: Marico’s volume growth in its key product categories has been impressive despite the price hikes taken. We have factored in ~18% CAGR over FY2011–13E in its focus brands and expect the international business to grow strongly at a ~30% CAGR over FY2011–13E, with the recent acquisition in Vietnam contributing ~5% to the top line in FY2012E and FY2013E. At the CMP of `143.4, the stock is trading at 25.x FY2013E. I believe the stock is fairly priced and, hence, I recommend Neutral on the stock.
HUL
Outlook and valuation: We expect HUL to post a ~13% CAGR in its top line over FY2011–13E, largely aided by steady performance of the company’s personal care and foods division (aided by innovations and higher ad spends), spike in detergents volume growth and modest performance of its soaps business (aided by brand re-launches). In terms of earnings, we expect HUL to post a ~17% CAGR. At the CMP of `327, the stock is trading at 24.2x FY2013E earnings, which is in-line with its historical valuations. I see a limited upside in the stock price and, hence, maintain a Neutral view on the stock.
References
i. Business Line
ii. CMIE
iii. Data Monitor
iv. IBEF
