Skip to main content

FMCG - Investment Prospect


16 July 2020
India
Sectoral Research
FMCG

FMCG – Investment Prospect
Mutual Fund Recommendation                                                                                                                      

What's driving FMCG growth?
• Rural areas and essentials driving sales for companies
• Contribution of rural to overall FMCG sales : 33%
• FMCG capacity utilisation in June :
90-100% (of pre-covid levels)
• Consumption growth in rural areas: 85-90% (of pre-covid levels)
• Strong underlying consumer demand in June, led by the hygiene and food categories
• Consumption growth in urban areas: 50-60% (of pre-covid levels)



Q4 FY19-20 and Lockdown
- Saw a subdued consumer demand from beginning of lockdown to mid-April
- Increase in for ‘personal care and personal hygiene’ category, and drastic decline in demand for beauty care products
- Increased demand for health and immunity boosting foods
- Top 10 FMCG companies generated free cash of over Rs 26,000 crore in FY20 despite the adverse impact of the pandemic in the second-half of March
- The market environment for FMCG companies are unlikely to change too drastically
Given the disruptions to the supply chain arising from Covid-19 in March 2020, the annual results still saw some growth in most FMCG companies
The Q4 results didn't see the year-on-year sales growth it usually does, but the numbers fared relatively well.
Overall, the Q4 results paint a picture of recovery, increased consumption and rationalization of product categories.
Recovery in demand seen in June implies that Q1 will not be a complete washout as anticipated earlier

The pandemic and  the consumer behavior
- Trips to grocery stores declined from 34.3 in March to 30.5 in May, indicating pantry loading
- Fewer trips, however, translated into bigger ‘trip size’, described as volume bought per trip, resulting in volume growth for companies
- Expenditure on food, health and homecare products by Indian households grew 4.3% during the covid-19-induced lockdown.
- Parle Products saw a 5% expansion in the packaged foods and packaged biscuits segment, registering better-than-expected growth from March to May
- Britannia Industries sold more biscuit packs in April and May, posting 20% and 28% growth in sales, respectively. This was on account of increased in-home consumption of the company’s brands.
- FMCG companies are witnessing a steep rise in their online sales - some have even claimed that their online business has doubled and tripled in this short span of time.
                                                       










Rural Demand
Factors
Growth
- Migrant workers in urban areas moving back to their hometowns has led to a surge in demand
- Rural sector has been growing much ahead of the urban sector and is expected to continue to outpace it
- Government spending on MNREGA and higher MSPs will cause rural consumption to further see an uptick
- Performing better than the pre-COVID days
- Increased awareness in health and hygiene stimulated demand for the relevant products
- FMCG companies have increased investment in rural areas in an attempt to capitalize on the growing demand
- Fewer infections and a less intense lockdown
- Consumption growth in rural areas reached 85-90 per cent of pre-Covid levels in June against 50-60 per cent in urban areas.
- Several government initiatives for farmers and a good monsoon can further improve demand


Relatively stable demand
In the current economic environment, FMCG may provide some respite in terms of business volatility. While the earnings can be expected to fluctuate, macro economically the demand and sales can be expected to remain relatively stable even in times of turmoil.

Comments

Post a Comment

Popular posts from this blog

Sanjay Leela Bhansali distorting history

Mr Sanjay Leela Bhansali if I make a movie a decade later showing this accomplished director was a drug addict and used to beat his co actors on sets of course with a disclaimer that  this movie is a work of art and changes have been made to characters but use the name Sanjay Leela Bhansali How will you feel? Sanjay Leela Bhansali was born in the year 1963 in Mumbai. He was a student of Film and television Institute of India, from where he was thrown out after a spat with the institute’s director.  Bhansali is also the only filmmaker who couldn’t be bothered with authenticity, accuracy and other such yardsticks when it comes to creating cinema. Devdas He is the only filmmaker who could not only take Sarat Chandra Chattopadhyay’s much-loved parable  Devdas  and give it a saas-bahu serial makeover in the name of creative license. After all, in the dozen odd adaptations of the novel no one could come with the idea of putting Chandramukhi and Paro in t...
19 comments
Read more
Equity and Bond markets way forward  Equity and Bond markets way forward  India’s nominal growth has slowed meaningfully over the past decade. Almost every major drivercorporate sales, wages, tax revenues, consumption, exports has decelerated. Private capex is still not picking up in a meaningful way, while consumption remains soft due to slower income growth and higher household debt. Exports, especially services, have also lost momentum compared to the strong pre-2013 phase. Market behaviour is also flashing caution. Breadth has weakened sharply, with very few stocks hitting new highs despite the indices being near peak levels. Small and mid caps have started slipping below key trend indicators, while large caps are quietly beginning to lead again. Promoter selling and record IPO fundraising also point towards a late-cycle environment. On the other side, bonds look attractive. With inflation at multi-decade lows and government borrowing stabilising, long-duration G-Secs arou...
Post a Comment
Read more
Millennial Money Moves: Navigating Mutual Funds for the Next Generation Hey there! If you've ever thought about saving or investing your hard-earned money, you might have stumbled upon the term mutual funds. Pretty daunting, right? Especially with all the technical jargon thrown around. But, worry not! Today, we're breaking it down into bite-sized, tailored for us - the young, dynamic, and future-forward Millennials. Ready to dive in? Let’s unravel the mystery of mutual funds and why they might just be the perfect fit for your financial goals. Why Mutual Funds? Mutual funds are essentially pools of money, collected from many investors, to invest in stocks, bonds, or other assets. Here’s why they are worth your attention: Diversity : Instead of putting all your eggs in one basket, mutual funds spread your investment across various assets. This means, if one investment goes south, you won’t be losing all your money. Professional Management : Not all of us are finance gurus, and t...
Post a Comment
Read more