FMCG index gains most in nearly two years; What is working for HUL, Marico, Dabur and GCPL

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Nifty FMCG index is trading with gains of 2.5% on Tuesday, marking their biggest single-day gain since July 2022. 12 out of the 15 index constituents are trading with gains.

Stocks like Marico, GCPL, Dabur are trading with gains between 4% and 10%, while Hindustan Unilever shares are up over 3.5%, the most in nearly five months. This is the best single-day gain for HUL in 2024.

So what is working for these companies?

Likely Recovery In Rural

Rural is a key segment for FMCG companies and commentary from most of them points to the fact that there is a recovery taking place in rural India.

• Hindustan Unilever’s management said that they are seeing greenshoots of a recovery in the rural markets.
• Dabur’s rural business grew at double the pace compared to the urban markets.
• Britannia mentioned in its earnings call that a good monsoon and contained inflation bodes well for recovery.
• Marico also highlighted that it expects a rural recovery in financial year 2025.

Return of Growth

The potential recovery in rural markets may also translate into growth returning for most of these companies, which has remained flat for the last few quarters.

• Dabur highlighted that it is targeting high single-digit volume growth with double-digit revenue growth
• Britannia highlighted that it is aiming for topline growth in financial year 2025.
• Marico is also expecting revenue to grow in double digits in the new financial year.

Contained Inflation

The managements of most FMCG companies expect the improvement in EBITDA margin to sustain as raw material pressures abate and ad spends, which were ramped up last year, see moderation.

Premiumisation Remains In Vogue

While rural markets recover for FMCG companies, premiumisation as a trend has stayed put.

• HUL’s premium beauty and personal care segment grew in double digits during the March quarter.
• Britannia’s modern trade and e-commerce business also grew in double digits from last year.
• Marico’s premium personal care and digital brands are likely to grow at double the pace of overall growth, according to its management.

Investing In Distribution, Scaling Of Acquisitions

There have been plenty of FMCG acquisitions announced over the last 12 months and as the scaling of these businesses will also contribute to this reviving growth.

• Godrej Consumer, which acquired Raymond’s consumer brands last year, expects revenue from the acquisition to double.
• Tata Consumer, which spent nearly ₹7,000 crore to acquire Chings and Organic Foods will also see scaling of this.
• Britannia and Marico also announced an increase in direct offline reach.

Underperformance Of Stocks

Most FMCG stocks have underperformed during the last 12 months in comparison to both the FMCG index as well as the Nifty 50.

“Many of these companies are already operating at lifetime high margins because the commodity prices are very benign. Whether it is Britannia or Marico or any other player. So, the scope to increase margins from here is very limited,” said Amnish Aggarwal of Prabhudas Lilladher.

“And that is why if we put in totality, the profit growth are not likely to be say on an average much beyond 10-12% kind of a bracket unless it until the benign raw material prices sustain and a very sharp upsurge in demand from the current level, which as of now seems to be gradually building upon,” he added.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow