Off late, Indian consumers are spending less on everything – right from toothpaste to cars. The last six months have seen weak demand and lower sales in crucial sectors such as fast moving consumer goods, and automobile industries.
Research from the country’s largest lender, State Bank of India, shows that of the 384 companies studied, 330 have seen negative growth in mid-line and bottom line in Q4 of fiscal 2019.
But does that warrant a correction in consumption stocks?
One of the reasons for weakened performance could be the ongoing elections that drew massive funding from India Inc. and individuals. Drawing cue from 2009 and 2014, consumers often postpone big-ticket purchases during the run-up to elections.
But, over time, things will normalize, and the consumption story will regain its momentum starting the second quarter of fiscal 2020.
Some of the stocks, an investor could look at with a long-term view are elucidated as under:
|Market Cap||₹17,016 Cr|
Emami Ltd (Emami) is one of the leading personal and healthcare businesses in India with brands such as BoroPlus, Navratna, Fair and Handsome and Zandu Balm.
Emami, established in 1974, has a portfolio of 250+ products that are based on ayurvedic formulations under the segments like hair care, skin creams and lotions, talcum powder, etc. The company markets and sells its products to over 60 countries through its strong distribution network.
Emami is a play on new age lifestyle problems. Therefore, the company’s key brands, such as Navratna, Boroplus, Zandu Balm, and Kesh King, will enjoy deeper penetration.
The company has also reduced its dependence from the wholesale channel and is ramping up its direct channel of distribution. These factors are likely to provide the scrip a boost over time.
|Market Cap||₹3,66,972 Cr|
Hindustan Unilever Ltd (HUL) is India’s largest FMCG company with a stronghold in segments like Home & Personal Care, and Foods & Beverages. The company has a strong product portfolio that is diversified across 20 categories.
Started by Unilever in 1931, the company has come a long way in India and is known to touch the lives of two out of three Indians.
The company is known to deliver strong operating performance against the backdrop of a slowing demand environment, especially in the rural market.
The company is likely to continue delivering decent earnings growth, owing to its strong portfolio of brands, strong distribution base, and synergy, due to the acquisition of GSK Consumer and Healthcare Ltd. Also, the company can see revival in the rural demand on the back of better than expected monsoon.
Thus, the scrip remains an all-time favorite name in the sector.
|Market Cap||₹63,747 Cr|
Britannia Industries Ltd (BIL) is one of the oldest companies in India that commands over one-third market share in India. The company has a strong portfolio in segments such as biscuits, bread, cake & rusk business.
It is known for its key brands such as Tiger, Britannia 50:50, Good Day, Britannia Treat, Marie & many more.
Despite a slowdown in the volume growth from the rural market, the company has remained committed to its innovation. The continued innovation momentum resulting in margin-accretive categories is likely to add to both top line and bottom line for the company.
We believe with an improvement in the overall consumption; the company will witness a revival in demand. Also, the company, through its product innovation, renovation, focus on productivity and efficiency, is in a position to deliver above-average earnings growth.
|Market Cap||₹66,307 Cr|
Dabur India Ltd. (DIL) is the fourth largest FMCG company in India and caters to health care, personal care & food segment. The company has some of the notable brands such as Hajmola, Pudin Hara, Dabur Chyawanprash, Glucose D, Odonil, Odomos, Vatika, Gulabri, etc.
DIL gained market share in all its categories, except for homecare and skincare, due to competition from Patanjali.
However, the company is well positioned to benefit from the government’s focus on reviving rural consumption. Also, the newly appointed CEO is committed to consolidating A&P investments, i.e., disproportionate investments on power brands such as Dabur Amla, Dabur Red, Real, etc.) instead of marginal brands.
The management believes that these power brands have a largely untapped market, thereby providing immense opportunity to scale up.
Thus, the company is likely to get benefit with the success of new launches, scaling power brands, marketing strategy, deeper distribution for the rural market, and recovery in rural demand.
Thus, the scrip remains a favorite pick in the sector, particularly after the recent correction, with a long-term investment horizon.
|Market Cap||₹59,832 Cr|
Pidilite Industries Ltd (PIL) is a household name in the adhesive market.
Incorporated in 1969; the company has emerged as a market leader in the adhesives and sealants, construction chemicals, hobby colors, and polymer emulsions in India.
Some of the notable brands for the company include – Fevicol, Dr. Fixit, Fevikwik, M-Seal, Ranipal, etc.
Experts predict the volume growth to be healthy at around 12% over the medium term. The growth will be led by a recovery in demand from the C&B, amid better monsoon and higher government spending in rural India.
Thus, you can remain positive on the growth prospects of the company, considering it is the market leader in many of the consumer adhesive categories and commands pricing power. Thus, the scrip remains favorable with support from a strong balance sheet, healthy return ratios, and efficient deployment of cash for inorganic expansion.
|Market Cap||₹11,628 Cr|
Hatsun Agro Product Ltd (HAPL) was incorporated in 1970 by R.G.Chandramogan. Located in Tamil Nadu, the company started marketing fresh milk in pouches from 1993 and got into manufacturing dairy products from 2003.
The company is currently the largest private sector dairy in the country. The company also is the parent of Arun Ice Cream, which happens to be one of the most sought after brands in Southern India.
The company’s core strength lies in milk and milk products, which is around 94% of the total revenue, out of which milk contributes about 65%, while the remaining is value-added products.
The company is changing the product mix to achieve better revenue and profitability.
The company is also in the expansion mode, and the capex cycle could get over in the next few quarters. You can be optimistic about the growth of the company and the factors that are leading an expansion in the industry.
You can also remain confident about the growth of the company and for elements that have resulted in development in the industry. Lastly, a shift from unorganized to the organized sector is likely to benefit the company.
|Market Cap||₹8,334 Cr|
The Bombay Burmah Trading Corporation Limited (BBTCL) was founded in 1863 as a public company and belongs to the Wadia Group. The company has achieved great success in the business of teak and has now diversified into tea, coffee, dental products, and formica laminates.
For BBTCL’s total investment value, 95% is contributed by Britannia Industries Ltd. As for BBTCL is concerned, the company, in addition to investments in group companies, also holds rich assets like huge plantations, and also reportedly significant land parcels.
This has helped the company achieve a premium valuation. Given a healthy future for Britannia in a sector like FMCG, BBTCL also remains a favorable scrip for investment over the medium term.
|Market Cap||₹29,486 Cr|
GlaxoSmithKline Consumer Healthcare Ltd (GCHL) is engaged in the core business of manufacturing health drinks under the brand Horlicks.
In October 1958, with the support of the Maharaja, the company was incorporated as Hindustan Milkfood Manufacturer (HMML) to produce Horlicks. Eventually, with multiple investments, mergers, and strategic investments, the current day GCHL came into force.
GCHL has been witnessing strong growth in revenue, driven by volume growth across channels and portfolios. The company has also been engaged in aggressive advertisement, marketing, and promotional activity. This has helped the company increase its penetration across different sections of society.
The company was recently acquired by the FMCG major HUL and is likely to see the benefit of synergy coming in over time. Thus, with an improved distribution network, rising market share of essential products and segments, coupled with synergies from HUL is likely to benefit the company over the long-term.
Disclaimer: The views expressed in this post are that of the author and not those of Groww. Groww in no-way advices or endorses the particular stocks mentioned in this article.