Volume growth should hold up FMCG P/E multiples: Analysts at Credit Suisse

The BSE FMCG (fast moving consumer goods) index has outperformed the Sensex in six out of the last 10 financial years, including year-to-date performance in FY18.
 
The strong show of the consumer sector is on the back of multiple re-rating rather than earnings growth. Thus, while earnings growth for the top consumer stocks has been 13 per cent, their returns have been a sharper 24 per cent.
 
Analysts at Jefferies said the consumer goods space has seen a sharp multiple rerating after FY09 as average one year forward price-earnings (P/E) multiple of the sector improved from 22 times in FY09 to 45 times in FY18. In fact, the consumer sector has not only bested the broader Indian markets but is also trading at a premium to global consumer valuations.
 
Hindustan Unilever, for example, is trading at a 160 per cent premium to its parent Unilever as against 80 per cent premium a year back. While global FMCG companies have fallen with the rise of US bond yields, Indian FMCG players have not seen a correction. Indian FMCG is perceived as a growth sector and a pick-up in volume growth led by rural uptick is expected to cushion the fall in P/E multiples, according to analysts at Credit Suisse.