While investing in the stock market, the biggest challenge for an investor is to choose the right stock. As there are more than 5,000 stocks in the stock market, it is extremely difficult to select the correct stock that can generate a healthy return. This situation becomes more complex when investors want to invest in a business that he/she does not understand. The great investors including Warren Buffet told several times to invest in the stocks business which you understand very clearly. Different types of investors understand different types of business based on their knowledge, expertise, and interest in that field. Some people may have good knowledge about certain types of companies because he/she works in that field. For example, a medical representative or a pharmacist may have good knowledge of Pharma Company’s business. On the other hand, an IT professional may have good knowledge of the business of IT companies. This is their Circle of competence – Pharma Company for pharmacists or IT Company for IT professionals. But is there any industry that falls in the circle of competence of almost all investors? Yes, there is. The name of that industry is the FMCG sector.
About FMCG Sector
What is FMCG Sector
- The full form of FMCG is Fast Moving Consumer Goods. As per Investopedia, “FMCG are products that are sold quickly at relatively low cost. These goods are also called consumer packaged goods.” In general, FMCG products have a very short shelf life and are sold at a cheaper price. Basically, the products we use on daily basis fall in the FMCG category, like Food items, Beverages, Drinks, personal grooming items, etc.
Market Size of the Sector
- In 2020, the market size of the FMCG sector in India was 7.814 trillion. Apart from that, India exports a great number of FMCG products to other countries.
Future of the FMCG Sector
- It is estimated that the FMCG sector of India will grow at a rate of 15% CAGR and reach 15.62 trillion by 2025. This means there is a huge potential for growth in this sector and if an investor takes the correct bet, he/she will have a great profit.
6 FMCG Stocks that can give Great Return
The following FMCG Stocks may give investors a healthy return in the long run.
Hindustan Uniliver (HUL)
- HUL is one of the top FMCG companies in India. The company is increasing its sales every year. HUL’s last 3 years’ average sales growth is 9.78%. The company’s Return on Equity is 29% which means on every 100 Rs. Investors put in HUL, it earns Rs. 29. The ROCE of HUL is 39.2%. The company is almost debt-free. The current PE of stock is around its 5 years historical P.E. This means right now valuation wise the stock is very attractive. At the end of December’’21 quarter, the net profit of Hindustan Uniliver was 2297 crore which is 116 crores more than the last quarter’s. As of 28.02.2022, the last traded price of the stock is Rs. 2172. Considering the huge market share and a large number of SKUs Hindustan Uniliver is expected to give investors a healthy return.
- However ITC is basically considered as a Cigarette company, it is increasing its FMCG business at a very fast rate. The company is trying to shift its focus from the Cigarette business to the FMCG sector persistently. ITC’s FMCG business is expected to grow at 9%. Having trusted brands like Ashirvad, Sunfeast, Fiama the business of ITC is expected to be grown. Last year ITC has acquired the spice brand ‘Shalimar’. Though Company’s last 3 year’s sales growth is poor, its ROE is very healthy which is at 21%. The company is completely debt-free. In terms of its historical P.E., right now the stock is available at a 35% discount. As of 28.02.2022, the last traded price of ITC was Rs. 216.
- Colgate-Palmolive is engaged in manufacturing toothbrushes, toothpaste, tooth powder, mouth wash, and personal care products. Though its sales growth is not very strong, Return on Equity is just unbelievable at 75.1%. The company is almost debt-free. Company is increasing its profit year on year basis. Further, the impact of the brand Colgate is so strong in the minds of Indian consumer that, the only thing an investor expect from this is its business growth. At present the stock is available below its historical P.E. Hence, valuation wise it is also attractive. The current Market Price of Colgate Palmolive as of 28.02.2022 is Rs. 1450.
- Dabur is the world’s largest Ayurvedic and natural healthcare company with a portfolio of 250+ Ayurvedic/herbal products. After the pandemic consumers are becoming more health-conscious and they are leaning towards a healthy lifestyle, hence increasing consumption of ayurvedic/herbal products. In this scenario business of Dabur is expected to grow. The ROE of Dabur is 23.7%. The company is almost debt-free. Its last 3 years average sales growth is more than 7% which is good in comparison to its peers. The company is consistently increasing its profit year on year basis. At present, the stock is trading at higher than its historical P.E. As of 28.02.22 the last traded price of the stock was Rs. 563. In long run, Dabur could give a healthy return to its investors.
- Widely known as Razor Company, Gillette India is a personal care brand. It sells shaving cream, razor blades, and shaving gel. The company has almost a monopoly in razor selling in India. Its distribution system is so strong that even in a stationery shop any product of Gillette is available. This also indicates the demand for its products. The company is completely debt-free. It has an ROE of 36.14% which is phenomenal. Last 3 years the average growth rate of Gillette is 6.22%. At present, the stock is available below its historical PE. As of 28.02.22, the Current Market Price of Gillette is Rs. 5195.
- Marico is one of India’s leading consumer goods companies. It has products from the beauty and wellness categories. The company is also present in more than 25 countries. Some of the brands of Marico are Set Wet, Safolla, Parachute, etc. The company’s last 3 years’ average growth rate is 8.38% which is awesome. The company is almost debt-free. At present of ROE of Marico is 36.7%. This justifies its current P.E. which is more than its 5 years historical P.E. At the end of the trading session of 28.02.2022, the last trading price of Marico was 515. Considering the trust in its product and its increasing market share across the globe, the stock may give its investors a good return.
As said above, India’s FMCG sector is expected to grow at 15% CAGR and stock(s) under this sector could give investors high returns. However, while investing in a stock, investors should analyze all the financials very deeply.
Warning: Investing in the stock market is always risky. So do not take the stocks mentioned in this post as a recommendation in any way. The stocks named in this post are for educational purposes only. The author of this post or anyone associated with this blog will not be held responsible in any way if anybody suffers a loss by investing in the stock market after reading this article.
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