FMCG index surges nearly 2%; ITC, Dabur, Marico, HUL, GCPL rally up to 6%

Shares of fast moving consumer goods (FMCG) companies were in high demand on Tuesday. The Nifty FMCG and the S&P BSE FMCG indices gained nearly 2 per cent each on the bourses on hopes of volume recovery on the back of a recovery in rural demand.

Normal monsoons, good harvest & increase in MSP will drive demand in rural markets in the near/medium term, according to analysts.

Nifty FMCG (45,142) and the S&P BSE FMCG (16,412) were up 1.9 per cent each in intra-day trade as compared to benchmark indices, Nifty 50 and the S&P BSE Sensex, which were up 0.50 per cent each.

Dabur India, Hindustan Unilever (HUL), Marico and Godrej Consumer Products (GCPL) gained 2.5-6 per cent, while ITC, Britannia Industries, Nestle India, Emami and Colgate Palmolive (India) were up between 1 to 2 per cent.

Pankaj Pandey, Head Research at ICICI Securities, believes the foods category would continue to grow at a faster pace with many FMCG companies foraying into newer food categories like fruit drinks, dry fruits, soya products, protein based products and nutrition products. These categories have been dominated by the unorganised sector and unbranded products, which creates high opportunity for growth, he said in a note.

“We believe volume growth would recover for most FMCG companies on the back of a recovery in rural demand led by high agri sector growth with normal monsoon in most regions. Moreover, price cuts, grammage restoration & festive season offers would be reflected in higher volume growth in urban India,” the brokerage said in a Q2 earnings wrap.

Analysts say that with softening of some commodity prices, gross margins would improve sequentially. However, crude, soda ash, milk, wheat and some of the other commodity prices still remains at elevated levels. The recovery in margin is expected to be slow given most FMCG companies would be looking to increase promotional offers & spend behind brands to focus on volume growth.

Meanwhile, among individual stocks, Dabur India today surged 6 per cent to Rs 591.70. The stock was quoting close to its 52-week high level of Rs 602.50 touched on November 30, 2021.

Analysts at Prabhudas Lilladher expect sequential gross margin improvement from Q3FY23 for Dabur India given lower inflation & calibrated price hikes. Rural demand continues to remain impacted by higher product prices and has lagged urban markets after 5 quarters.

Meanwhile as regards to HUL, the brokerage said that the FMCG major remains bullish on the sector given low penetration in several product categories and low FMCG per capita consumption (USD 46) vs other developing countries.

HUL remains positive on growth given low penetration of rural with 31 per cent of consumption (69 per cent of population) and its strong reach, rising affluence increasing scope of premiumisation, favorable demographics with larger share of millennials and Gen Z, portfolio straddling price segments to cater to cater to all class of customers, sustained innovation, renovation and new launches and higher growth and market share in channels of future modern Trade & e-commerce.