Top 5 FMCG Stocks Quantitative Analysis

6 min read
Which is the best FMCG Stock? Here is the Quantitative Analysis of Top-5 FMCG companies based on their Q1FY22 performances.

Introduction:

The fast-moving consumer goods (FMCG) sector is India’s fourth-largest sector with household and personal care accounting for 50% of FMCG sales in India. Growing awareness, easier access, and changing lifestyles have been the key growth drivers for the sector.

The retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 840 billion in 2017, with modern trade expected to grow at 20 25% per annum, which is likely to boost the revenue of FMCG companies. Revenue of FMCG sector reached Rs. 3.4 lakh crore (US$ 52.75 billion) in FY18 and is estimated to reach US$ 103.7 billion in 2020. 

FMCG sector is expected to register strong growth in the upcoming times on the back of increasing rural demand, changing consumer behavior, and increasing internet penetration auguring online sales.

Please note that we have done this analysis with the only purpose of screening good companies. Analysis done is completely on a quantitative basis. No suggestions are being made to directly go and invest in the top-scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top-scoring companies in this analysis and take investment decisions based on risk profile.

FMCG Sector Quantitative Analysis

Companies selected for Analysis:

We have selected the following five FMCG companies for our Quantitative Analysis.

Market Capitalization of 5 FMCG Stocks (Rs. Cr):

  • HUL- Rs. 5.84 Lakh Cr
  • ITC- Rs. 2.57 Lakh Cr
  • Nestle India- Rs. 1.82 Lakh Cr
  • Dabur- Rs. 1.05 Lakh Cr
  • Godrej Consumer Products- Rs. 1.02 Lakh Cr

The procedure of Analysis and its Interpretation

  • These 5 Companies are analyzed on the following 16 parameters and ranked and scored accordingly. For example, a company with a higher PE ratio is provided with a lower rank, hence has scored lesser points. Similarly, if a company has higher RoE, it has a higher rank and has scored higher points.
  • Here, 1 means that the company has scored the lowest points and 5 means the company has scored the highest points.
  • In the end, we have added all the points together and companies are ranked accordingly.

Parameters of Quantitative Analysis:

1. PE Ratio:

  • PE of a company means that how much investors should pay for the stock based on their current earnings. A company with a lower PE Ratio is considered to be undervalued and has a huge potential to unlock its value. Hence, full points will be rewarded to that company.
  • With the lowest PE Ratio of 18.47, ITC gets the first position and 5 points. And Nestle India with the highest PE of 82.46 among peers is awarded 1 point only.
Top 5 FMCG Companies- PE
Top 5 FMCG Companies- PE

2. EV/EBITDA:

  • EV/EBITDA ratio measures Enterprise Value (EV) to the Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA). This ratio assesses the overall financial performance of the firm.
  • EV/EBITDA of value below 10 is considered healthy.
  • Here also, ITC bags the first position among the Top 5 Companies with the lowest EV/EBITDA ratio of 12.23. Nestle India with the highest EV/EBITDA ratio of 50.69 receives the last position and one point only.
Top 5 FMCG Companies- EV/EBITDA
Top 5 FMCG Companies- EV/EBITDA

3. Stock Returns % Since Last Quantitative Analysis:

  • Since the last quantitative analysis, Godrej Consumer Products has delivered the highest return of 23.15% among all other stocks and hence ranked 1st rank.
  • In the same period, ITC is the only company that has delivered a negative return of 0.52% therefore given 1 point only.
Top 5 FMCG Companies- Stock Returns %
Top 5 FMCG Companies- Stock Returns %

4. Return on Capital Employed (ROCE):

  • ROCE signifies that how the company is using its capital to generate a return for the company and investors. The high ROCE, the better it is for the company.
  • In this parameter, Nestle India outperforms other peers by scoring the highest ROCE of 147.88% and hence obtains the 1st position as well as 5 points.
  • The ROCE of HUL has fallen from 114.7% to 38.4% in the March quarter due to a rise in the reserve balance. Currently, it is at 38.36%.
  • Godrej Consumer Products get the last position and 5th rank due to the lowest ROCE of 19.61%.
Top 5 FMCG Companies- ROCE
Top 5 FMCG Companies- ROCE

5. Return on Equity (ROE):

  • RoE signifies how well the company generates the return on shareholders’ investment. Companies with higher RoE are considered good.
  • In this parameter, Nestle India again beat other peers by scoring the highest ROE of 103.89% and hence obtains the 1st position as well as 5 points.
  • Godrej Consumer Products with the lowest RoE of 19.87% receives the last rank.
  • The ROE of HUL has fallen from 84.2% to 28.6% in the March quarter due to a rise in the reserve balance. Currently, it is at 28.63%.
Top 5 FMCG Companies- ROE
Top 5 FMCG Companies- ROE

6. Debt-to-Equity Ratio:

  • The debt-to-equity ratio is a leverage ratio that measures the debt of a company against its total shareholder’s equity.
  • Accordingly, the lesser is the debt, the better it is for the company and vice-versa.
  • HUL and ITC are debt-free companies and hence rewarded with full points and given the first position.
  • Nestle India has a total D/E of 0.02 and it’s ranked 3rd.
  • Godrej Consumer Products has the highest D/E ratio of 0.19 and is hence given 5th rank. Likely, Dabur India has the D/E ratio of 0.07 and is hence given 4th rank.
Top 5 FMCG Companies- D/E Ratio
Top 5 FMCG Companies- D/E Ratio

7. Interest Coverage Ratio:

  • The Interest Coverage ratio is in direct relation with the D/E ratio. It can be calculated by dividing EBIT from Interest Expenses.
  • This ratio gives the ability of the company to pay interest from its operating profit.
  • Since HUL and ITC are zero-debt companies, they maintain a good Interest Coverage Ratio. ITC, with an Interest Coverage Ratio of 310.56, highest among peers, gets the first rank.
  • Due to the lowest Interest Coverage Ratio of 16.11, Godrej Consumer Products is ranked last and scored accordingly.
Top 5 FMCG Companies- Interest Coverage Ratio
Top 5 FMCG Companies- Interest Coverage Ratio

8. Pledged %:

  • All the 4 companies in the list have not pledged their share and hence are rewarded with full points and first rank.
  • Godrej Consumer Products have a pledge of 0.66%, hence, given 5th rank and only 1 point.
Top 5 FMCG Companies- Pledged %
Top 5 FMCG Companies- Pledged %

9. Institutional Holding (FII + DII):

  • Institutional Investors (FII + DII) as a % of Free Float has the highest stake in Dabur India, collectively of 77.4% and hence it is rewarded with full points and first rank.
  • FIIs and DIIs also hold around 76.8% stake in Godrej Consumer Products and hence it secures the 2nd position in this criterion and scores 4 marks.
  • ITC has the lowest stake of institutional investors of 54.1% in the Company’s shareholding pattern and hence is given 1 point only.
Top 5 Companies- Institutional Holdings (FII + DII)
Top 5 Companies- Institutional Holdings (FII + DII)

10. Operating Profit Margin (%):

  • Higher the Operating Profit Margin (%) of a company, better the operational efficiency of a company and vice-versa.
  • ITC efficiently posts the OPM of 31.2% and secures 1st position, due to the cigarette segment, the EBIT Margins are 63% and it contributes to 35% of the revenue.
  • With the lowest OPM of 20.7%, Godrej Consumer Products scores last rank among its peers.
Top 5 FMCG Companies- Operating Profit Margin (%)
Top 5 FMCG Companies- Operating Profit Margin (%)

11. Sales and Net Profit Growth- 5 Year CAGR:

  • In terms of Sales Growth, Nestle India has posted the highest figures with a 10.3% rise in sales and a 29.9% rise in PAT. Hence, it gets the full points and 1st rank.
  • Dabur has registered the lowest Profit after Tax (PAT) growth on 5 years CAGR basis of 6.2% as well as the lowest sales growth of 4.2%, hence, got the 5th position.
Top 5 FMCG Companies- Sales & Net Profit Growth- 5 Years CAGR
Top 5 FMCG Companies- Sales & Net Profit Growth- 5 Years CAGR

12. Sales & Net Profit Growth: 3 Year CAGR:

  • In terms of Sales Growth, Nestle India has posted the highest figures with a 10.1% rise in sales and a 19.3% rise in PAT. Hence, it gets the full points and 1st rank.
  • Here, Godrej Consumer Products has registered the lowest Profit after Tax (PAT) growth on 3 years CAGR basis of 1.7% as well as lowest sales growth of 3.9%, hence, got the 5th position.
Top 5 FMCG Companies- Sales & Net Profit- 3 Years CAGR
Top 5 FMCG Companies- Sales & Net Profit- 3 Years CAGR

13. Operating Performance Ratios- Inventory Turnover Ratio (Higher the Better):

  • Inventory turnover signifies a parameter that measures how fast the inventory is sold or consumed in the given period, the higher the better.
  • Here HUL secured the 1st rank with the highest Inventory turnover of 16.6 and get full 5 points.
  • ITC got the last rank due to a poor Inventory turnover ratio of 5.52, hence only 1 point was given.
Top 5 Companies- Operating Performance Ratios- Inventory Turnover Ratio
Top 5 Companies- Operating Performance Ratios- Inventory Turnover Ratio

14. Operating Performance Ratios- Cash Conversion Cycle (CCC):

  • Again HUL secured the highest rank among its peers with the lowest CCC of negative (55.3) and get full 5 points.
  • Here ITC got the last rank due to the highest CCC of 38.50, hence only 1 point was given.
Top 5 FMCG Companies- Cash Conversion Cycle
Top 5 FMCG Companies- Cash Conversion Cycle

15. Final Score:

  • After analyzing and summing up all the marks scored by the Top 5 FMCG Companies, HUL, and Nestle India jointly shares the first position in our analysis. Both stocks score 59, the highest among all 5 companies.
  • ITC and Dabur scored 47 points, and 46 points respectively, and hence secured 3rd, and 4th rank respectively.
  • Due to poor performance in the majority of parameters, Godrej Consumer Products gets the lowest score of 36 points.
  • On account of healthy scores, HUL and Nestle India appear to be strong FMCG Companies.
Top 5 FMCG Companies- Final Score
Top 5 FMCG Companies- Final Score

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