Comparative analysis of FMCG companies - Consumption story is begining

 



Most of the renowned investors and brokerage houses have been recommending that the investors should be looking towards the consumption theme. As the population increases and the standard of living improves, people are more likely to spend on fast moving goods. With prosperity, people are going to move towards premium items that generate higher margin for the companies. Compannies are also focusing on serving premium items to the customer. Companies are also coming up with ayurvedic and herbal products. With Patanjali cutting away significant market share from all of them, it is time that the FMCG companies develop items based on consumer liking.

In this case study we shall take a look at:

  • Finanial Ratios and Numbers
  • Company products and recent strategic changes
  • A glance at the Balance Sheet

For this article we are taking into consideration only those companies which are purely into FMCG. That means, we are not going to consider ITC and Tata Chemicals which are more into diversified play. Investors can also take a closer look at ITC and Tata Chemicals as they have a mojor portfolio of FMCG products and these companies have started focusing on this sector.

So, here is the list of companies that we are going to look at:

 

Financial Numbers and Ratios

Market has traditionally given a higher P/E to the FMCG stocks. In the recent bull run some of these companies have been trading at a price which is near 100 times their earnings. This looks quite high, but the market is valuing these consumption based stocks at prices that has never been seen in the past. Investors are advised that they should be very careful while investing in these stocks. These high P/E numbers get offset by high earnings growth and a few of these companies have performed exceedingly well in terms of both revenue and PAT.
Table 1 - Comparision of numbers and ratios Comparision of FMCG companies - Table 1 Hindustan Unilever hasn't had a great performance in terms of revenue, but the PAT grew by 19 percent YoY during the April-June quarter of FY19. Market latched on to this and Hindustan Unilever's stock price shot up. Dabur India's stock price jumped after it declared the results for April-June quarter of FY19. Dabur's PAT increased by 36 percent YoY. Emami, Colgate Palmolive and Godrej Consumer Products also had a great quarter compared to the corresponding quarter of the last financial year.

Company products and recent strategic changes

Hindustan Unilever

The company has a huge portfolio of products and most of them are market leaders in their own segment. This company has a moat around it which makes it quite attractive. Few of the products are:

Rs 2000 Crore Brands Rs 1000 Crore Brands Rs 500 Crore Brands
Surf Lux Sunsilk
Lifebouy Vim Kissan
Brooke Bond Lakme Pears
Wheel Clinic Plus Closeup
Fair and Lovely Rin Bru

With a burgeoning middle class, Hindustan Unilever is here to stay. They have almost every product that a household needs. They are constanly improving their products and coming up with newer ones almost every quarter. Hindustan Lever has increased visibility of their ayurveda based products through LEVER Ayush brand to cater to a population that is averse to chemical based products and more likely to buy a herbal based product.

Bajaj Corporation

The smallest of the FMCG companies which are part of this case study, Bajaj Hindustan is into a niche segments of hair care and skin care.
Few of the best known products are:
  • Nomarks skin cream and soap
  • Bajaj Almond Hair Oil
  • Bajaj Brahmi Amla Oil
Bajaj almond hair oil is the highest selling product in the light hair oil segment. Most of the products are placed in the premium segment which gets reflected through the Net Profit Margin Number which is the highest among FNCG companies.

Colgate Palmolive

Colgate Palmolive is a well known name in India. Colgate is synonymous with toothpase and almost every household might have used its oral care products. Colgate is mostly into oral cae and the Palmolive brand caters to shower gel and handwash segments. Colgate has also ventured into naturals segment through Colgate Vedshakti brand.
Few of the brands are:
  • Colgate Salt
  • Colgate Total
  • Colgate Active
  • Colgate Herbal
  • Colgate Maxfresh
  • Colgate Vedshakti
  • Colgate tooth brushes
  • Colgate Plax mouthwash
  • Palmolive Hand Wash
  • Palmolive Shower Gel
Colgate Palmolive has maintained a healthy Net Profit Margin. The revenue during the April-June quarter of FY19 came down a bit, but the company managed to substantially increase its profit over the corresponding quarter of the last findncial year.
Table 2 -Colgate Palmolive numbers over the years Comparision of Colgate Palmolive yearly numbers - Table 2 The yearly numbers captured under Table 2 show that the company's revenue and PAT have not increased by a great deal over the years, but the company has a moat around it which allows it to sustain a margin which is enviable. The recent drop in revenue should worry the management and the investors should rest assured that they are going to do something to take care of it.

Marico Limited

Marico is still a young company, having been founded in 1990, which has a huge list of products spanning many segments such as haircare, skincare, edible oils, healthy foods, male grooming and fabric care.. Some of their products is so well known that the company's name gets hidden behind them.

Few of the brands are:
  • Parachute
  • Set Wet gel
  • Nihar
  • Saffola
  • Hair & Care
  • Livon (anti-hairfall treatment and hair serum)
  • Revive (fabric care)
  • Mediker (anti-lice treatment)
Apart from India, the company is also present in Malaysia, Egypt, South Africa, Bangladesh, Vietnam and the Middle East. Marico is the market leader in 90% of its portfolio. As the income of the population increases and the living condition improves, Marico is likely to grow faster. Biggest contributor to growth of the company could come through the products under edible oil and heathy foods segments. Marico has also forayed into the Ayurvedic products segment.
Illustration 1 - Marico performance over the years Marico performance over the years - Illustration 1

Godrej Consumer Products

Many of the products made by Godrej Consumer Products are well known andd they have become part of almost every house hold in India. Godrej Consumer Products is into home care, hair care and personal care segments. These products have taken top positions in their own segments. Not just in Indis, Godrej CP has also forayed int countries like Senegal, South Africa, Ghana and Argentina.
These products are niche and thrir growth defines the growth story not just in India but also in many other developing countries across Africa and Latin America.
Few of their brands are:
  • Hit
  • Cinthol
  • Godrej No. 1
  • Good Night
  • Aer
  • Ezee
  • Mitu (baby care)
Illustration 2 - Godrej Consumer Products brand position Godrej Consumer Products brand position - Illustration 2

Godrej CP's revenue groth has been satisfactory, but their PAT growth in the April-June quarter of FY19 is quite amazing. With more cars and more consciousness towards home and personal hygine, the company is bound to do better in the coming years.

Dabur India

This company has rediscovered itself in recent times and considerably increased the profit margin in the last five years. Dabur was mostly concentrated on naturals and more specifically on Ayurvedic products.
The company makes few of the most well known products across Health Care, Skin Care, Hair Care, Oral Care, Home Care and Foods.
Few of their brands are:
  • Dabur Amla Hair Oil
  • Hajmola
  • Real fruit juice
  • Dabur Chyawanprash
  • Vatika Hair Oil
  • Dabur Honey
  • Odonil
  • Odomos
  • Meswak
  • Fem
  • Pudin Hara
This company is the original ayurvedic company which has a whole host of products. The company's revenue has stagnated a bit due to the advent of Patanjali and also due to factors like demonetization and GST. Now that the growth of Patanjali been stagnated a bit, the management can work towards increasing the revenue and also maintain the same king of margin (17+%). The management can also looks towards foraying into other food segments to increase shareholder value. Illustration 3 - Dabur performance over the years Dabur performance over the years - Illustration 3

Emami

Emami is another FMCG player which has a significant in the eastern part of the country. They have a great number of products under personal care, hair care and skin care segments among which a few are very well known.
The company's growth has stagnated in the last few years. Investors should be aware that the company does not own the products such as Mustard oil, Healthy & Tasty recepies and Biodiesel. These products are owned by Emami Agrotech which is a sister concern.
Few of the brands owned by the company are:

  • Zandu
  • Boro Plus
  • He deodorant
  • Navratna
  • Fair and Handsome
Illustration 4 - Emami performance over the years Emami performance over the years - Illustration 4

Proctor and Gamble

Procter and Gamble, popularly kknown as P&G, is one of the largest FMCG players in the world. Procter & Gamble Hygiene and Health Care Limited is its Indian arm.
The company has a number of products in its portfolio out of which a few of them are very well known.
Few of the brands in the portfolio are:

  • Whisper
  • Pampers
  • Ariel
  • Tide
  • Vicks
  • Oral-B
  • Olay
  • Pantene
  • Head and Shoulders
Table 3 - Procter and Gamble performance over the years Procter and Gamble performance over the years - Table 3

The company has done quite well in the last few years. Even though the sales and PAT numbers look a bit stagnated, the company is bound to do better with the stabilization of GST regime. The company is also expected to step in and do everything possible to take of the situation.

Gillette India

Gillette is the largest player in the organized men grooming segment. It is owned by Procter and Gamble, so the management teams of both the companies could be common and if the investors take a cafeful look then, they will realize that even the layout of the Annual Reports also look similar.
The company has a moat around it, but the company's performance gets severely affected when men start to keep longer beard and the frequency of shaving the beard goes down. This is what has happened in the recent times.
Most of the products of the company are very well known. They have a portfolio which consists of razors, gels, foams, blades, trimmers, after shave splash
Few of the brands in the portfolio are:

  • 7'o CLOCK
  • Gillette Razors
  • Gillette Shaving cream, gel and foams
Table 4 - Gillette performance over the years Gillette performance over the years - Table 4

The company's salles number has tripled, but the PAT has just doubled in the last 10 years which is a major disappointment. The management needs to think about newer strategies to increase the margin since their recent stragies around promoting shaving among young men has been a major failure.
The management of P&G can think about merging the Indian operations of Gillette under it. Men also feel it cost effective to visit a neighbourhoon saloon for shaving and styling than to buy razors and shaving at home.expensive

A glance at the Balance Sheet

Table 5 - A glance at the key numbers from the Balance Sheet A glance at the key numbers from the Balance Sheet - Table 5 Market is giving a Price to Book Value ratio is more than 30 to most of these FMCG companies. This nummber looks extraordinarily high. In case the company goes bust, the investor is going to get back only 3% of the price peid to acquire the stock at current price. Bajaj Corporation is getting a P/BV of little more than 10 whereas the market is giving a P/BV to Godrej Consumer Products.

These companies have one great thing in common which is that most of them are debt free. It is important for the investors to keep in mind that the market goes in cycles. The morket is currently giving a huge premium to the FMCG companies, but this may not always happen.

 

 

Connect @
Important Links
SEBI AMFI BSE India NSE India
Copyright: IndiaOne Media 2019