Long considered as ‘defensive’ stocks meant to be held only as a cushion during a market collapse, FMCG companies are charting phenomenal growth and their stocks prices are keeping pace
It is common perception that stocks of fast moving consumer goods (FMCG) companies are defensive stocks. They often take a backseat to the more fancied and hyped growth stocks like software, automobiles or media. It is believed that these stocks should only be considered as a defence mechanism during bear phases. When the broader market is down, these stocks hold their ground reasonably well, offering stability to the portfolio while other stocks take a beating.
Well, the 'stability' logic still holds water. FMCG products, by their very nature, are essential for the daily requirements of all households-be it detergents, soaps, toothpaste etc. Demand for such bare essentials remains steady even during economic downturns. That is why these companies witness steady growth even when other industries are reeling from the consequences of a slowdown.
But, for years now, the performance of FMCG stocks has been far from defensive. It is time that FMCG stocks are stripped off this oft-repeated and generalised 'defensive' tag. Like their products, the stocks are fast-moving as well. Many of the stocks have surged to new all-time highs, outperforming the broader market indices handsomely.
Companies like ITC, Dabur, Godrej Consumer Products, Nestle and GSK Healthcare have performed quite well over the past five years. As a result, their stock prices have also exhibited phenomenal growth. In 2003, ITC was Rs40.
Currently it is trading at Rs291. In 2006, GSPL was trading at Rs27 and now finds itself at Rs99. Similarly, Dabur and Nestle were trading at Rs12 and Rs500 in 2003-they are now trading at Rs192 and Rs2,811 respectively. GSK Healthcare, which is now trading at Rs1,655, was trading at Rs201 in 2003.
In the last quarter of the previous financial year the results have been especially great. While the Sensex has fallen by 2% between 4 January 2010 and 4 June 2010, the FMCG index has risen by a healthy 10%. Other sectoral indices like auto, banking and software have only risen by 6%, 7% and 2% respectively during this period. The future looks as bright. A KR Choksey report on the FMCG sector states, "We expect FMCG companies to continue their growth story with improvement in the overall economic scenario and consumer spending.
With a likely normal monsoon as is expected by most experts, which would help cool off inflation, it will result in improvement in margins for all companies. Also, normal monsoons would increase the disposable income for rural consumers, giving them scope for more spending on consumer goods."
An Anand Rathi research report confirms, "With falling food inflation and a normal monsoon expected, we expect consumer companies to maintain the revenue growth tempo. However, we anticipate mounting competition to crop pricing power. With the fall in price of crude and lower raw material prices, margins would hold steady." According to KR Choksey, companies with a more diversified portfolio-both product-wise & geography-wise-would benefit more. This would include Nestle, GCPL, Tata Tea and Colgate.
Here is a brief look at the recent performance of some of the top FMCG companies. ITC reported a strong net profit growth of 27% y-o-y on the back of strong revenue growth in cigarettes, agri-business and FMCG businesses.
Revenues surged 30% while EBITDA increased by 25% y-o-y. The stock has reflected the strong growth momentum, surging 15% since its January opening.
Godrej Consumer Products Limited's (GCPL) revenues soared 48% on the back of robust growth in both domestic and international operations. Net profit jumped a phenomenal 55% while EBITDA also surged 52% y-o-y. GCPL's share price has also taken off, rising by 15% since January 2010.
Dabur is not far behind the growth curve either. Dabur's acquisition of Fem Care and strong volume growth boosted its top-line, which witnessed a 17% rise in the financial year 2009-10. Its EBITDA also expanded by 28% due to lower input costs. Dabur's stock has seen a 20% jump since January.
GSK Healthcare has also reported good numbers for the previous financial year. Strong volume growth in biscuits and nutrition supplements and improved realisations boosted its top-line by 20% while net profit rose by 15% y-o-y. Its stock price has surged 26% since January.
All the convicts applied for bail immediately after the sentencing and were granted relief in the case
A quarter century after the world's worst industrial disaster that killed over 15,000 people, a court today convicted former Union Carbide India chairman Keshub Mahindra and seven others in the Bhopal Gas tragedy case and awarded them a maximum of two years imprisonment.
However, 89-year-old Warren Anderson, the then Chairman of Union Carbide Corporation of USA, who lives in the United States, appeared to have gone scot free for the present as he is still an absconder and did not subject himself to trial.
There was no word about him in the judgement delivered by Chief Judicial Magistrate Mohan P Tiwari 23 years after trial commenced.
All the convicts applied for bail immediately after the sentencing and were granted relief in the case, the judgement of which comes against the backdrop of a debate on the Civil Nuclear Liability bill which would provide for compensation to victims in case of a nuclear disaster.
Tiwari pronounced the verdict in a packed court room convicting 85-year-old Mahindra, the non-executive former chairman of UCIL, and seven others in the case relating to leakage of deadly methyl isocyanate gas in the night intervening December 2 and 3, 1984.
They were held guilty under Sections 304-A (causing death by negligence), 304-II (culpable homicide not amounting to murder) and 336, 337 and 338 (gross negligence) of the Indian Penal Code.
Others found guilty were Vijay Gokhle, the then managing director of UCIL, Kishore Kamdar, the then vice president, J N Mukund, the then works manager, S P Choudhary, the then production manager, K V Shetty, the then plant superintendent and S I Quereshi, the then production assistant.
Mahindra, who had declined a Padma Bhushan award in 2002 on grounds that he was facing trial in the case, and six others were present to hear the judgement while Quereshi was represented by his counsel. The sentencing for Quereshi is yet to be announced.
They were sentenced to two years imprisonment and awarded a fine of Rs 1 lakh each under section 304(a), imprisonment of 3 months and a fine of Rs 250 under Sec 336, 6 months and Rs 500 under Sec 337 and 2 years and Rs 1,000 under Sec 338. All the sentences will run concurrently.
Civil rights activists fighting for the families of victims of the disaster called the judgement "too little, too late" and accused the prosecution and CBI of failing the victims by diluting the charges.
The market regulator’s meeting with banks to discuss strategies to boost volumes on online MF platforms has failed to achieve a breakthrough
As it stands now, the market watchdog's pitch to the bankers for using their distribution network to boost sales on the struggling mutual fund platforms on the stock exchanges has failed to elicit a healthy response from the banking community.
The Securities and Exchange Board of India (SEBI), in its high-level meeting with bank sponsored AMCs (asset management companies) and their respective retail banking heads, made a passionate case for tapping the banks' existing infrastructure and consumer reach to boost volumes on the Bombay Stock Exchange's (BSE) StAR MF platform and National Stock Exchange's (NSE) NEAT Mutual Fund Service System (MFSS). However, this meeting, which lasted for more than an hour, has not gone the way of the regulator.
The meeting was attended by senior officials from both the stock exchanges, namely, NSE's deputy MD Chitra Ramakrishna and BSE's deputy CEO Ashish Chauhan. The banking community was also represented by some banks like Union Bank of India, State Bank of India, HSBC, Canara Bank and others. Surprisingly, however, a lot of senior level management from the banks and AMCs were not present for the meeting, despite SEBI's push for a high-level participation.
In the meeting, SEBI tried to persuade the participants to take the stock market route to funds by asking them to look at the long-term opportunity for the mutual fund industry, one which has seen an unfortunate reversal in fortunes since the regulator's controversial alterations in the structure of the industry. Pitching the stock market route as an attractive option, SEBI argued that since most of the KYC (know your customer) procedures were already done, there would be no further need for it.
Sources have revealed to Moneylife that most bank AMCs listened patiently but kept quiet throughout. An official representing one of the banks argued that if banks were to accept applications and process them (currently being handled by the registrar and transfer agents CAMS and Karvy), it would entail extra responsibility upon the bankers while offering little opportunity for remuneration.
One of the participating bankers told Moneylife that the meeting ended like any other called by SEBI in the recent past, adding that no breakthrough was achieved. Surprisingly, none of the stock brokers who actually use the NSE and BSE systems were present for the meeting. A source within the industry confided to us, "It is like asking road builders to drive on the road and not the car-owners for whom it is actually meant."
Moneylife had earlier written (http://www.moneylife.in/article/81/5841.html) how this plan to enlist banks to help boost sales of mutual fund schemes is unlikely to work. And so far it has not.