Top 5 FMCG Stocks in India

From pure honey to beauty soap, super-wide is their scope. As far as your eyes can wander in a bazaar, FMCGs owns most of it. After all, it's not easy to be one of the largest sectors in the Indian Economy! Don't you think that our basic needs depend on this sector? Today, we will dive into the FMCG sector, from understanding it to the top 5 most loved & successful FMCG companies in India. Let’s take a look!

What is the FMCG Sector?

The fast-moving consumer goods are the products that we use daily. They get sold quickly at a relatively low price. 

The FMCG sector is one of the fastest-growing verticals of the country that consists of 3 main segments:

• Household & personal care (contributing 50% of total sales).

• Healthcare (up to 31%).

• Food & Beverages (making up 19% of the sector).

It's important to know the factors supporting the growth of this sector. Let’s move forward to learn some!

Growth Drivers for the Sector

Policy Support by the Government

There is a 100% foreign direct investment (FDI) approval by the Indian government for the food processing segment in single-brand retail. While under the multi-brand retail market, 51% FDI is allowed. GST regime is also beneficial for the FMCG sector. A lower tax rate of 18% is charged on various products such as soaps, toothpaste, etc., compared to 24% charged earlier. 

Upsurge in Rural Consumption 

Currently, it contributes around 45% of the total revenue of this sector. As there is improvement in the distribution channels in rural areas, demand for high-quality goods has been rising. The companies are witnessing higher growth rates in rural demographics compared to the urban segment. 

Demographic Support

India has one of the highest youth populations. And they are characterized by higher expenses and more urbanization. Growing awareness about personal hygiene and easier access through digitalization among the young population are the main contributing factors in the growth of this sector. 

Lucrative Investments 

From April 2000 to March 2021, the sector had robust FDI inflows of US $18.19 billion. Since the demand for FMCG goods and services never dies, this sector attracts investors the most. The companies in the FMCG sector are constantly investing in setting up new plants for expansion purposes to meet the growing demand.

E-commerce acting as a catalyst 

Better internet connectivity and higher penetration of mobile phones have lead to the growth of the e-commerce segment. This segment is expected to contribute around 10% of the FMCG sales in the coming years, also aiding the formalization of the unorganized retail segment. 

There are many factors supporting this giant, but there is a need for more reasons before we get invested. So here is a list of added aspects to be considered.

Why should you invest in the FMCG sector? 

• This sector is growing at a rate of 15% if compounded annually. 

• The sector has steady growth and continues to grow due to a surge in disposable income and rising expenditure. 

• It is expected that the sector will grow at a CAGR of 20-25% in the coming years.

• Looking at the past trend, the companies in this sector have given tremendous returns at a CAGR of 17-18%. And the BSE FMCG Index has already increased around 32% in less than two years. 

• As more products are developed and buyers always have something new to pick every time, the competitiveness in this sector will never cease and will continue to create value for FMCG firms.

• Keeping FMCG stocks in the portfolio can protect you from any adverse movements as these stocks provide steadier growth during times of recession. 

Good enough, right? Now, let’s delve into the criteria one can follow for selecting these stocks.

Criteria to identify Top FMCG companies

• Firstly, we filter out the companies based on the market capitalization of the companies. We only consider companies in the sector with Market capitalization higher than  ₹75000 crores.
• The second criterion is the Debt to equity ratio. It should be less than 0.6. Apart from this, we can use criteria such as ROCE, ROE, etc. 

(Source: Ticker Screener)

Finalllyyyyy!!!!! Having learned so much, let’s now look at the Top 5 FMCG Companies in India.

Top 5 FMCG Companies in India

Hindustan Unilever Ltd.

With a revenue of around ₹40511 crores, it is India's largest FMCG firm. For the past 80 years, it has dominated India's household goods market. It makes items for personal care, home care, and refreshment. The company has more than 35 brands across multiple segments. Some of its well-known brands include Rin, Sunlight, Lux, Vim, Vaseline, Pepsodent, Kissan, etc.  

(Source: HINDUNILVR)

ITC Ltd.

This company has been operating in the economy for more than 100 years. It was founded as Imperial Tobacco Company, then later changed its name to ITC Ltd. More than 65% of its revenue comes from the tobacco segment. The company diversifies its business into different verticals, including hotels, agriculture, branded apparel, personal care, etc. Bingo, Bristol, Ashirwaad, Vivel, Sunfeast, and Savalon are only to name a few of its many brands.

(Source: ITC)

Nestle India Ltd.

This is the third-largest FMCG company in the country. It is the subsidiary of Nestle, a Swiss global organization. The company dominantly deals with confectionaries, foods, and beverages segments. It launches its products under the brand names of Maggi, Kit-Kat, Milo, Milkmaid, Nescafe, etc. 

(Source: NESTLEIND)

Dabur India Ltd.

It is the most prestigious Ayurvedic and Natural Health Care Corporation in the world. The company earns around 45% of its domestic revenue from the rural segment of the country. It deals with 3 major strategic business units- food, consumer care, and international. Due to its unique portfolio of products produced with natural ingredients, the company has a strong global presence.

(Source: DABUR)

Britannia Industries Ltd.

Britannia is one of the fastest-growing consumer products organizations in India. It is part of the Wadia Group, headed by Mr. Nusli Wadia, well-known for its biscuit offerings. Its portfolio consists of brands such as Tiger, Marie Gold, Good Day, etc. Its products reach over 50% of Indian households through 5 million retail outlets across the country. 

(Source: BRITANNIA)

Conclusion 

If you just look at the products around, you can observe how frequently we use FMCG products in our daily lives. From toothpaste to the jam you spread on bread, these companies manufacture almost all the everyday needs products. This simple observation shows our dependency on this sector and the growth potential. FMCG is an indestructible sector, and investing in good companies in this sector will give you good returns in the long run. 

Usually, the FMCG performs better than other sectors during times of recession in the economy. As we have seen the destruction due to Covid 19 pandemic in every business sector,  somehow they managed to remain steady in the tough time. So, we can conclude that keeping a portion of FMCG stocks in your portfolio brings stability to it.

Do let us know if you have invested in the sector and earned good returns! Share this blog with someone who is thinking about investing in these companies. 

*Disclaimer: The stocks discussed above aren't recommendations from Finology; they are only picked to make you understand the concept.