Top 5 FMCG Stocks- Quantitative Analysis
Which is the best FMCG Stock? Here is the Quantitative Analysis of Top-5 FMCG companies based on their Q3FY22 performances.
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. 4.69 Lakh Cr
- ITC- Rs. 2.82 Lakh Cr
- Nestle India- Rs. 1.65 Lakh Cr
- Dabur- Rs. 93,361 Lakh Cr
- Britannia Industries- Rs. 75,244 Cr
The procedure of Analysis and its Interpretation
- These 5 Companies are analyzed on the following 14 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:
Top 5 FMCG Companies- PE
- PE of a company means 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 19.08, ITC gets the first position and 5 points. And Nestle India with the highest PE of 77.07 among peers is awarded 1 point only.
Top 5 FMCG Companies- 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 12.72. Nestle India with the highest EV/EBITDA ratio of 44.07 receives the last position and one point only.
3. Return on Capital Employed (ROCE):
Top 5 FMCG Companies- ROCE
- ROCE signifies 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%.
- Dabur India gets the last position and 5th rank due to the lowest ROCE of 27.29%.
4. Return on Equity (ROE):
Top 5 FMCG Companies- 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 99.25% and hence obtains the 1st position as well as 5 points.
- HUL with the lowest RoE of 18.35% 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 18.35%.
5. Debt-to-Equity Ratio:
Top 5 FMCG Companies- D/E 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 0.01 and it's ranked 3rd.
- Britannia Industries has the highest D/E ratio of 0.40 and is hence given 5th rank. Likely, Dabur India has the D/E ratio of 0.07 and is hence given 4th rank.
6. Interest Coverage Ratio:
Top 5 FMCG Companies- 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 18.13, Nestle India is ranked last and scored accordingly.
7. Institutional Holding (FII + DII):
Top 5 Companies- Institutional Holdings (FII + DII)
- Institutional Investors (FII + DII) as a % of Free Float has the highest stake in Dabur India, collectively of 75.7% and hence it is rewarded with full points and first rank.
- FIIs and DIIs also hold around 67.1% stake in HUL and hence it secures the 2nd position in this criterion and scores 4 marks.
- ITC has the lowest stake of institutional investors of 53.8% in the Company's shareholding pattern and hence is given 1 point only.
8. Operating Profit Margin (%):
Top 5 FMCG Companies- Operating Profit Margin (%)
- Operating Profit Margin can be calculated by dividing Operating Profit by Total Revenue. It is sometimes also called EBIT (Earnings before Interest and Tax) 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 30.5% and secures 1st position, due to the cigarette segment, the EBIT Margins are 63.5% and it contributes to 39% of the revenue.
- Next to ITC is HUL with an Operating Profit Margin of 25.4% in Q3FY22. For HUL, Margins rose QoQ due to :
- Strong Recovery in Discretionary & OOH (Out-of-Home) product portfolio, reached Pre-COVID levels
- Price Actions
- Cost-saving Measures
- With the lowest OPM of 15.1%, Britannia Industries scores the last rank among its peers.
9. Sales and Net Profit Growth- 5 Year CAGR:
Top 5 FMCG Companies- Sales & Net Profit Growth- 5 Years CAGR
- In terms of Sales Growth, Nestle India has posted the highest figures with a 10.15% rise in sales and a 29.89% 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% and ITC has recorded the lowest sales de-growth of 0.7%, hence, got the 5th position.
10. Sales & Net Profit Growth: 3 Year CAGR:
Top 5 FMCG Companies- Sales & Net Profit- 3 Years CAGR
- In terms of Sales Growth, HUL has posted the highest figures with a 13.3% Hence, it gets the full points and 1st rank.
- Britannia Industries records the highest Profit After Tax (PAT) growth of 22.9% in the last 3 years and hence awarded with the first rank.
- Here, ITC has registered the lowest Profit after Tax (PAT) growth on 3 years CAGR basis of 5.30% as well as the lowest sales growth of 3.68%, hence, got the 5th position.
11. Operating Performance Ratios- Inventory Turnover Ratio (Higher the Better):
Top 5 Companies- Operating Performance Ratios- Inventory Turnover Ratio
- 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.
12. Operating Performance Ratios- Cash Conversion Cycle (CCC):
Top 5 FMCG Companies- Cash Conversion Cycle
- CCC refers to the no. of days a company takes to sell its inventories and collect its receivables.
- The shorter (even negative) the cash conversion cycle of a company is, the better it is considered and vice versa.
- Again HUL secured the highest rank among its peers with the lowest CCC of negative 117 and get full 5 points.
- Here ITC got the last rank due to the highest CCC of 11.5, hence only 1 point was given.
13. Final Score:
Top 5 FMCG Companies- Final Score
- After analyzing and summing up all the marks scored by the Top 5 FMCG Companies HUL got the first position in the analysis with 49 points.
- Britannia scored 46 points and received second position.
- Due to poor performance in the majority of parameters, Dabur India gets the lowest score of 34 points.
- On account of healthy scores, Britannia and HUL appear to be strong FMCG Companies.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.
Originally Published On: https://blog.investyadnya.in/which-large-cap-fmcg-stock-outperformed-in-q3fy22/