Ratio Analysis and Risk and Return of Fmcg Industry
FMT-I
Ratio Analysis and Risk and Return
Industry – FMCG
FMCG – Fast moving consumer goods
Companies - ITC, HUL , Nestle India , Dabur , Godrej Consumer Products
The Indian FMCG sector is the fourth largest sector in the economy with an estimated size of Rs.1,300 billion. The sector has shown an average annual growth of about 11% per annum over the last decade. Unlike the developed markets, which are prominently dominated by few large players, India’s FMCG market is highly fragmented and a considerable part of the market comprises of unorganized players selling unbranded and unpackaged products. There are approximately 12-13 million retail stores in India, out of which 9 million are FMCG kirana stores.
Index concentration level:
The index is largely driven by ITC and HUL, as they contribute around 75% to the total index. Both companies have posted good results, thus helping the index to grow despite weak domestic market. If both these companies are excluded then the index comes out to be overvalued by only 7.82%. Therefore, the index has high dependency on these two companies.
The Union Budget 2012-13 proved to a mixed bag for the FMCG industry. On one hand, minor increase in the tax exemption limits and some incentives on equity investments were positives as this would increase the disposable income levels. But on the other hand, the increase in excise duty more or less offset the above effect. We feel that smaller players would find it difficult to pass on the duty hikes to end consumers and will chose to take the brunt of this hike in a bid to maintain and grow market share. On the other hand, deep-pocket players like Nestle, ITC and HUL with their leadership position and strong brands will be able to pass on the hike to consumers.
Going forward, the easing of raw material prices and appreciation of rupee against dollar would help the FMCG companies to maintain their margins in future. With increase in disposable income and favourable
Ratio Analysis and Risk and Return
Industry – FMCG
FMCG – Fast moving consumer goods
Companies - ITC, HUL , Nestle India , Dabur , Godrej Consumer Products
The Indian FMCG sector is the fourth largest sector in the economy with an estimated size of Rs.1,300 billion. The sector has shown an average annual growth of about 11% per annum over the last decade. Unlike the developed markets, which are prominently dominated by few large players, India’s FMCG market is highly fragmented and a considerable part of the market comprises of unorganized players selling unbranded and unpackaged products. There are approximately 12-13 million retail stores in India, out of which 9 million are FMCG kirana stores.
Index concentration level:
The index is largely driven by ITC and HUL, as they contribute around 75% to the total index. Both companies have posted good results, thus helping the index to grow despite weak domestic market. If both these companies are excluded then the index comes out to be overvalued by only 7.82%. Therefore, the index has high dependency on these two companies.
The Union Budget 2012-13 proved to a mixed bag for the FMCG industry. On one hand, minor increase in the tax exemption limits and some incentives on equity investments were positives as this would increase the disposable income levels. But on the other hand, the increase in excise duty more or less offset the above effect. We feel that smaller players would find it difficult to pass on the duty hikes to end consumers and will chose to take the brunt of this hike in a bid to maintain and grow market share. On the other hand, deep-pocket players like Nestle, ITC and HUL with their leadership position and strong brands will be able to pass on the hike to consumers.
Going forward, the easing of raw material prices and appreciation of rupee against dollar would help the FMCG companies to maintain their margins in future. With increase in disposable income and favourable