FMCG stocks to buy post-Q1 results

The FMCG sector reported a decent set of results for the quarter ended June 30 despite the second Covid wave. Overall, firms, which are a part of the BSE FMCG index, posted nearly 20% year-on-year growth in net sales on a low base as the topline was adversely impacted during the national lockdown in the corresponding quarter. Net profit witnessed a rise of 12% YoY rise during the quarter under review. With the second wave disruptions behind, normalcy is returning and a strong rebound is expected in Q2.

Data shows that Dabur India posted a 28.45% YoY rise in net profit at Rs 438.37 crore during the quarter under review. Colgate-Palmolive, HUL and Nestle India posted a 17.69%, 10.70% and 10.68% YoY rise in net profit. ITC posted 30.24% YoY growth in net profit on a 35.97% rise in sales.

Dabur witnessed very strong growth across categories surpassing pre-Covid level sales. Some of the essential categories like edible oil, staples, noodles, salt, oral care saw strong volume growth during the quarter. Tea, soaps, hair oils witnessed higher pricing growth given the companies have partially passed on a steep increase in commodity costs.

Marico witnessed sustainable growth in edible oil and food categories whereas the hair oils segment saw complete volume recovery. Discretionary categories like skincare, cosmetics, detergent witnessed strong sales growth but continued to remain below pre-Covid levels. Similarly, ‘out of home’ and ‘on-the-go’ categories like carbonated drinks, juices, cigarettes saw a sharp recovery from the extremely low base quarter. However, volumes still remained below pre-Covid levels.

However, a look at the two-year growth in revenue, volume and operating profit showed that Britannia has performed best across metrics, followed by Godrej Consumer (GCPL) and Dabur. Bajaj Consumer lagged across metrics. In terms of sales and EBITDA, HUL’s headline numbers have benefited from its merger with GSK.

Share price movement

Shares of FMCG majors including Tata Consumer Products, Emami and Godrej Consumer Products have gained more than 37% year-to-date, while the benchmark BSE Sensex has advanced around 13% during the same period. Other players including Marico, Hindustan Foods, Bajaj Consumer Care, Procter & Gamble Hygiene and Dabur India have gained between 11%-30% during the same period.

On a sequential basis, ICICI Securities said that revenues were down 1.8% with some impact of the second Covid-19 wave on discretionary categories. However, high pricing growth on the back of rising raw material prices offset the impact of sub-par volumes.

What are brokerages saying?

ICICI Securities added that the second Covid-19 wave had adversely impacted rural growth but recovery in June and subsequent months was also steep. E-commerce channels continued to see high growth (50-100%) with the acceleration of the online shopping trend. The channel now contributes 6-9% of FMCG companies’ sales compared to around 2-3% in the pre-Covid scenario.

“FMCG companies are making efforts to increase the direct distribution network to increase the penetration of some of the underpenetrated categories through smaller SKUs,” the brokerage said.

Centrum Broking retained their positive view on ITC and Britannia in the FMCG space and expect a turnaround in performance for Bajaj Consumer.