The fast-moving consumer goods (FMCG) sector is the only space that can never go out-of-demand. It is a consistent sector considering the fact that people are never really going to stop using soaps, shampoo, hair oil and other products in their daily lives. However, this year has not been that great for consumer staples. The once-upon-a-time fast moving sector has rather become a slow-moving sector due to low demand in the rural market.

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Volume growth was the first sign of stress during the March-quarter results. India’s biggest FMCG company Hindustan Unilever reported a volume growth of only 7 percent, which was a worrying dip. The FMCG giant before Q4FY19 has posted a double-digit volume growth in the preceding five quarters.

ITC, next big FMCG giant, also reported a single digit volume growth during the March quarter indicating low consumption. However, it worsened when Godrej Consumer Products announced the volume growth of a mere 1 percent for Q4FY19. Only two companies came up with double-digit growth i.e. Nestle and Dabur. Both these FMCG major also gave good returns of 35-45 percent.

After Nifty Bank, Nifty Financial Services and Nifty Realty, valuation of the Nifty FMCG index was the most expensive among the NSE sectoral indices as of May 31. Among the major FMCG stocks, ITC is the least expensive stock trading 28 times to its current market price, while others are trading at a P/E of 40-63x.

Coming to debt/equity (D/E) ratio, Hindustan Unilever has D/E of 1.33x which poses as a higher risk. This indicates that the FMCG giant is aggressively financing its growth with debt. D/E ratio is often used in gauging the extent to which the company is taking on debt as a means of leveraging its assets.

The company that is placed most comfortably in terms of D/E ratio is ITC followed by Marico, Godrej Consumer Products, Britannia and Dabur.

Furthermore, all FMCG companies in this Q4FY19 presented a double-digit net profit growth except Godrej Consumer Products and Marico. Marico registered the highest net profit growth at 258 percent YoY, and Godrej reported net profit growth of 207 percent YoY.

Hindustan Unilever looks like a risky but a profitable bet as it trades at the highest P/E along with highest RoE and even higher D/E ratio. Meanwhile, ITC looks like a safer bet with the lowest P/E and decent returns of 20 percent with the lowest D/E ratio.

First Published:Jun 5, 2019 10:01 AM IST