Is FMCG Sector worth Investing?

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In 2011 the FMCG sector shares were the only ones that provided the investors positive average returns of 8 percent. In the same period the Hindustan Unilever Ltd. (HUL) was one of the major performers in the stock market. During November the stocks of the organization reached their peak and their showing in the second quarter was fairly good as well.

Meanwhile, the shares of two other prominent names in India’s FMCG sector – Colgate Palmolive and GSK Consumer Healthcare have performed pretty well too. In November the shares of both the organizations reached their highest point in 52 weeks.

In the last couple of years the shares of the fast moving consumer goods companies have provided investors with a certain sense of security during times of financial trouble. The Vice President of the Equities division at Motilal Oswal Securities, Rikesh Parikh, has stated that FMCG shares are regarded as good defensive options.

He has also stated that in the period between July 2010 and July 2011 the FMCG index delivered 23 percent returns compared to the auto index that provided 6%. As per economic experts, the FMCG shares like technology and energy stocks have low beta and provide greater yields in terms of dividends.

Leading FMCG Shares

Following are the leading FMCG shares of the BSE:

CompanyCMPMarket Capitalization in croresPE
Gillette India 2511.458156.63132.35
Britannia Inds.5967099.5142.82
P&G Hygiene21987104.5242.16
Nimbus Foods1.587.1135
GlaxoSmith C H L276011568.8134.92
Hatsun AgoProd.78.95836.8333.35
Vikas Granaries37.8565.3214.77
Vadilal Enterp. 1149.4414.76
Hind Inds. 35.529.2914.24
Shah Foods382.212.2
GKB Opthalmics34.6513.711.22
Amar Remedies155403.269.66
Chordia Food54.915.819.08
Bambino Agro Ind26.820.478.49
Vikas Wsp66.65872.497.91
Umang Dairies38.8584.817.54
Flex Foods2733.626.73
Kothari Ferment.9.2512.656.15
Usher Agro50.55190.874.61
Temptation Foods4.216.550.24
Mount Everest102345.780
Lotus Chocolate23.530.170
Modern Dairies14.1532.60
Nestle India4718.0545778.2951.43
Madhur Inds14.55.9939.59
Godrej Consumer492.716804.8138.85
Dabur India105.518422.7137.24
Hind. Unilever401.1589447.6935.74
Henkel India23.55276.0133.86
Zydus Wellness389.951534.8624.37
DFM Foods220227.3520.14
Jyothy Lab.164.61332.8216.95
Bajaj Corp.1201775.1614.89
Kwality Dairy 37.65766.0611.06
T N Petro Prod16.1146.2210.76
Himalaya Intl.26134.155.88
L T Foods39.2102.915.1
REI Agro11.221121.824.31
Chamanlal Setia26.8526.173.54
JHS Sven. Lab.40.9574.680
SKM Egg Prod.6.4417.380
RCL Foods33.5516.060
Lakshmi Energy18.45118.180
Agro Dutch Inds.5.328.980
Tasty Bite Eat.12232.380

The leading FMCG shares in the NSE can be enumerated as below (Please note that the statistics regarding market capitalization have not been repeated in case of companies which have been mentioned in the previous table):

CompanyCMPMarket Capitalization in croresPE
GlaxoSmith C H L2749.85NA34.77
Emami 414.1NA25.47
Bajaj Corp121NA14.86
Kwality Dairy37.55NA11.01
L T Foods39.5NA5.12
Usher Agro50.55NA4.63
KRBL 18.4NA4.34
Lakshmi Energy18.7NA0
KLRF Ltd28.9514.210
Gillette India2500NA132.66
Nestle India4715NA51.37
Britannia Inds.591.25NA42.93
P&G Hygiene2189.65NA42.23
Godrej Consumer491.15NA38.93
Dabur India105.55NA37.32
Hind. Unilever400.75NA35.73
Zydus Wellness387.25NA24.4
Vadilal Inds.125.393.1123.33
Heritage Foods146.1169.4919.95
Jyothy Lab.162.85NA16.99
Sita Shree Food5.5512.5210.77
T N Petro Prod.16.1NA10.73
Amar Remedies154.25NA9.67
REI Agro11.1NA4.25
Kohinoor Foods32.291.620
JHS Sven Lab.40.4NA0
SKM Egg Prod.6.5NA0
Agro Dutch Inds.5.1NA0.00*

(*Please note that the above mentioned figures are subject to change)

One of the major reasons behind the good performance of the FMCG shares has been the strong consumer affinity, which has helped them to raise their product prices. This trend is set to continue in the days ahead and organizations with greater offerings are expected to benefit from it.

Is the FMCG sector worth investing?

In 2011 the FMCG funds provided investors with an average yield of 8-10.57 percent. Sectoral funds such as the FMCGs provide the investors with lot of assurance in times of financial problems as per the Vice President of, Devangi Bhuta.

Morningstar India says that the FMCG funds have shown lesser fluctuation in the long term as opposed to diversified equity funds. In the last 5 years, the FMCG sector shares have shown lower standard difference of 22.14. In the same period the large cap funds have recorded similar figure of 29.78 and for the mid and small-cap funds the figure stands at 32.49.

At present the PE multiple of the FMCG indices in the BSE is 27 times of the forward earnings for a year, which is fairly expensive. The BSE Sensex is presently worth 13 times more than the forward earnings. This has taken the valuation of the FMCG sector to 108 percent premium over the greater market.

Naveen Trivedi, who works as an analyst with PINC Research, has stated that at the present moment the expensive nature of FMCG valuations and the stocks’ performance will play a major role in determining how well the stocks perform in the days to come.

Some analysts are of the opinion that these shares will have premium valuations in the immediate future. Kaustubh Pawaskar, a Sharekhan analyst, has stated that in spite of the expenses involved the sector will draw attention because of the uncertain financial conditions at present.

It is estimated that as soon as the Indian economy starts to grow these shares will fall behind the high growth industries. Experts feel that the investors need to be selective when it comes to investing in the FMCG shares – there are a couple of stocks that are expected to do better than the others such as the following:

  • ITC
  • GlaxoSmithKline
  • Godrej Consumer Products

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Last Updated on 05 April 2012