Tag Archive : FMCG sector stocks analysis

4 factor analysis of India’s FMCG Sector (Ratio Based Quantitative Analysis of top 10 FMCG companies)

This analysis is done with the only purpose of screening out good companies. Analysis done is completely on quantitative basis. No suggestions are being made to directly go and invest in the top scoring companies of this analysis.

Let’s study some FMCG companies, we have selected the following companies for study and analysis (the companies are selected on the basis of market cap, the top 10 companies of that sector according to market cap):

  1. HUL
  2. ITC
  3. Nestle India
  4. Godrej Consumers
  5. Dabur India
  6. Britannia
  7. Marico
  8. Colgate
  9. GSK Consumer
  10. Procter & Gamble (P&G)
Sr. No. Company Name Market Cap (Rs. Crore)
1 HUL 401,922.93
2 ITC 337,536.18
3 Nestle India 105,797.33
4 Godrej Consumers 84,285.50
5 Dabur India 78,141.11
6 Britannia 75,372.50
7 Marico 48,131.21
8 Colgate 35,682.32
9 GSK Consumer 32,712.80
10 P&G 31,524.99

The top 100 companies according to the New Market Cap Classification are called as the large cap companies. Companies from 101 to 250 (based on market capitalization) are the mid-cap companies and the rest, that is above 250 are the small cap companies. The risk associated with small cap companies is more as compared to large cap and mid-cap companies. All the top 10 FMCG companies are large cap companies.

The analysis of these companies is going to be based on the following parameters. They are as follows: –

  1. What is PE Ratio
  2. What is ROCE (Return on Capital Employed)
  3. What is ROE (Retuen on Equity)
  4. Debt to Equity Ratio (DE Ratio)

These parameters play an important role in the analysis of any company. This does not mean that one should be dependent only on these, but these parameters are crucial for initial screening.

First, we have given the companies their ranks and then accordingly we have assigned scores to those companies from 1 to 10, where 1 being the least and 10 being highest score. (total number of companies taken here are 10, that’s why the mentioned scoring card)

What is PE Ratio

Sr. No. Company Name PE Ratio Rank Score
1 HUL 68.8 8 3
2 ITC 29.31 1 10
3 Nestle India 67.17 7 4
4 Godrej Consumers 52.37 4 7
5 Dabur India 54.69 5 6
6 Britannia 69.24 9 2
7 Marico 54.89 6 5
8 Colgate 48.8 3 8
9 GSK Consumer 38.37 2 9
10 P&G 78.37 10 1

PE ratio is nothing but what price an investor is paying for 1 rupee of earning. The company which has the lowest PE ratio ranks 1st and scores the highest that is 10. And the company which has the highest PE ratio ranks 10th and scores the lowest that is 1.

P&G has the highest PE ratio and thus got number 10 rank and scored 1. ITC has the lowest PE ratio and thus scored number 1 rank and a score of 10.

What is ROCE (Return on Capital Employed)

Sr. No. Company Name ROCE Rank Score
1 HUL 109.00% 1 10
2 ITC 34.21% 7 4
3 Nestle India 57.04% 4 7
4 Godrej Consumers 21.09% 10 1
5 Dabur India 28.30% 9 2
6 Britannia 47.47% 5 6
7 Marico 39.49% 6 5
8 Colgate 71.10% 3 8
9 GSK Consumer 32.53% 8 3
10 P&G 89.10% 2 9

The company which has the highest ROCE has the highest rank and has also been given the highest points. And the company which has the lowest ROCE has the lowest rank and has also been given the lowest score. HUL has the number 1 rank and scored 10 points. And Godrej Consumer has the lowest rank (10th) and scored 1 point.

It can be observed that the companies which have high PE ratios also have higher ROCE.

What is ROE (Retuen on Equity)

Sr. No. Company Name ROE Rank Score
1 HUL 77.57% 1 10
2 ITC 22.65% 9 2
3 Nestle India 36.56% 4 7
4 Godrej Consumers 25.46% 8 3
5 Dabur India 25.93% 7 4
6 Britannia 32.90% 5 6
7 Marico 31.49% 6 5
8 Colgate 48.67% 3 8
9 GSK Consumer 21.18% 10 1
10 P&G 56.85% 2 9

ROE has been analyzed on the same basis as ROCE. The company which has the highest ROE has the highest rank and has also been given the highest points. And the company which has the lowest ROE has the lowest rank and has also been given the lowest score.

Here too, HUL ranked 1st as it had the highest ROE and thus scored 10. But here, GSK Consumer ranked 10th as it had the lowest ROE and thus scored 1.

Debt to Equity Ratio (DE Ratio)

Sr. No. Company Name DE Ratio Rank Score
1 HUL 0 1 10
2 ITC 0 1 10
3 Nestle India 0.01 2 9
4 Godrej Consumers 0.56 6 5
5 Dabur India 0.16 5 6
6 Britannia 0.06 3 8
7 Marico 0.12 4 7
8 Colgate 0 1 10
9 GSK Consumer 0 1 10
10 P&G 0 1 10

A lower DE ratio means that the company doesn’t require debt for its growth or for its working capital. That is the debt component of that company is very low and it can run its operations smoothly using the existing equity or reserves & surplus. The company which has the highest DE ratio has the least score and the company with lowest DE ratio has the highest score.

In FMCG sector very few companies take on debt, particularly large cap companies. The reason is that the reserves & surplus of these companies become very huge. Once the company is almost set, then the expenses keep reducing and the margins of the company go on increasing, as there are no huge investments required anymore and raw material cost is also low.

The biggest advantage of FMCG companies is that, once the branding of the company is done, the cost of production decreases and the company does not any debt anymore. Its not like all the FMCG companies are debt free, just that the debt even required by some of the FMCG companies is very low. HUL, ITC, Colgate, GSK Consumer and P&G being a 0-debt companies scored 10. Godrej Consumer has the highest DE ratio and has thus scored 5. Here, Godrej Consumer has the highest DE ratio, but when u look at the broader the market this number is still very low.

Final Standings

Rank Company Name Final Score
1 Colgate 34
2 HUL 33
3 P&G 29
4 Nestle India 27
5 ITC 26
6 GSK Consumer 23
7 Britannia 22
8 Marico 22
9 Dabur India 18
10 Godrej Consumers 16

Colgate is on the 1st position with 34 points, HUL is on 2nd with 33 points, P&G is on 3rd with 29 points and Godrej Consumer is on the last position, that is 10th with just 16 points. The point here is to focus on the fundamentals of the company. Here, we have analyzed the company based on their current fundamentals. Also, the qualitative analysis of these companies will provide with a better outlook towards them

And quantitative analysis along with qualitative analysis will give a better understanding of which company is worth investing from here on.

Note:

  • We are not, in any case, suggesting buying stocks of any of the companies mentioned above. We have just provided a study on these companies.
  • All the data used is of Trailing Twelve Month (TTM)

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