The rural Indian market has emerged as a key target area for most of the Fast Moving Consumer Goods (or FMCG) companies as it still has very low penetration in terms of distribution networks. On average a rural household spends nearly 50% of its total income on FMCG products. Nifty FMCG Index very marginally declined for the week ended July 2 compared to its last week. Looking at the 52-week high and 52-week low FMCG Index, this sector appears more or less stable than the other sectors. On closer scrutiny of major companies in this space, we have shortlisted 3 stocks that have a decent potential going forward.
Tata Consumer Products Ltd (NS:TACN)
Tata Consumer Products Ltd has emerged as one of the fastest-growing FMCG companies of recent time. The company has a dominant presence in the food and beverage segment in India. Most notably, the company is the second-largest player in the Branded Tea market in the world with well-known brands like Tata tea and Tetley in its portfolio. Tata Consumer Products also has a wide range of products covering packed water, salt, pulses, spices, ready-to-cook offerings, and many more. Very soon they are going to launch the Eight O'Clock coffee brand in the Indian market which is America’s original gourmet coffee.
Its revenue grew at a CAGR of 23.2% in the last five years ended March 2021. It means the company more than doubled its revenue in the last five years taking FY 2017 as a base year. What is noteworthy is its operating profit growth during the same time. Tata Consumer’s operating profit witnessed a 20.8% CAGR during the same time frame. The company also maintained the same dividend levels over the last 5 years. The stock has given slightly more than 93% returns to investors based on a closing price of Rs 765.2 on July 2. A quick look at the technical data suggests a bullish trend ahead.
Dabur India (NS:DABU) Ltd
India’s oldest FMCG company Dabur India was in Ayurvedic health care products in earlier stages. The company has steadily spread its presence in the major segment such as personal and health care products, Ayurvedic products, and home care products. The company closed the challenging Covid-19 hit FY 2020-21 with a 13.3% year-on-year revenue growth. Its market share in many key categories has witnessed a rise.
Dabur India is in expansion mode and they are in the process of setting up a new plant at Indore Madhya Pradesh with an estimated investment of Rs 550 crores. The construction has already begun for the initial phase. The new plant will be used to produce food products, Ayurvedic medicine, and health products. Dabur India’s revenue grew at a CAGR of 7.6% in the last five years, whereas its net income CAGR remained 8.5% during the same period. Looking at technical details, it is evident that stock is trading above its’ short, medium, and long-term moving average.
Godrej Consumer Products Ltd. (NS:GOCP)
Godrej consumer product is mainly into Home and personal care products. Many of the company’s products are a household name across the country. It has very well-known brands such as Cinthol soap, Good knight, Hit, Godrej No-1 hair dye in its portfolio. These brands have garnered notable market share in their respective categories. The current pandemic situation has the potential to generate strong demand for its’ hygiene and household insecticides products.
Although the company’s revenue grew at a CAGR of 4.3%, its operating profit CAGR was 11.2% in the last five years. During the same period, its net income jumped 83% translating into a CAGR of around 13%. Among the major FMCG companies, Godrej Consumer Products' stock return was on the lower side. Based on July 2 closing price, the stock returned 25.2% over a year.