The Hindu Business Line : FMCG counters turn attractive

Growth strategy
At a broader level, gains will flow in from newer products for urban consumers, greater penetration into rural and semi-urban markets and increased focus on the yet-nascent lines such as fruit juices.

Kolkata , Sept. 22

FMCG stocks are moving apace in line with the market's expectations, driven by a combination of factors that are currently going in their favour. A number of them, including some that have typically seen relatively low trading volumes, are said to have attracted fresh attention from institutional investors.

Analysts cite majors such as ITC and Tata Tea, which have advanced distinctly in the recent past, as well as smaller-cap companies such as Dabur and Radico, as stocks that are adding to investors' wealth. The trend, they say, is generally reflected across the sector.

Price revision

Some of the better-known FMCG companies, having revised prices in various product categories, are said to be planning similar measures in future, a move that will positively impact revenues.

Broking sources refer to Godrej Consumer, believed to be working on a price revision for its soaps in the coming months, while Wipro Consumer Care is attempting the same for its flagship brand. HLL, which has adjusted Surf and Surf Excel prices, is considering further steps to tackle mounting input costs in the toilet soaps segment.

That FMCG outfits have performed fairly well in the June quarter is also helping the market to form an opinion, it is felt. In fact, it was the fifth consecutive quarter in which the industry's sales growth stayed over 14 per cent.

Gains and losses

The stocks that brokers say have gained in the context of their quarterly numbers are Marico (36 per cent growth in sales), ITC (25 per cent), Britannia (23 per cent) and Colgate-Palmolive (19 per cent). The laggards' list included Nirma, HLL and Nestle, which clocked less than 9 per cent sales growth. P&G saw a 30 per cent-plus decline because of its recent disinvestment of detergent contract manufacturing operations.

According to marketmen, a variety of factors is driving the FMCG segment at present. These will remain important in the days to come. At a broader level, gains will flow in from newer products for urban consumers, greater penetration into rural and semi-urban markets and increased focus on the yet-nascent lines such as fruit juices.

"After a few years' lull, categories such as detergent, toothpaste and toilet soap are recording decent sales. The accelerated popularity of organised retail in urban areas and rising rural incomes together have facilitated remarkable growth in the FMCG sector," stock broking firm SKP Securities said. Analysts also allude to the theory that the sector's dependence on monsoons now stands reduced because the proportion of agri-based products has come down relative to non-agri-based products. At the other end of the spectrum, however, is the threat of rising crude prices. Increasing oil rates have made it difficult for FMCG firms, particularly detergent makers.

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