Five fundamentally strong FMCG stocks are down 30% from 52-week highs

The sector plays a crucial role in the Indian economy, providing employment to around 3 million people and accounting for approximately 5% of the total factory employment in the country.

The sector's growth is fuelled by a combination of favourable government initiatives and policies, an expanding rural market, a youthful population, the introduction of new branded products, and the rise of e-commerce platforms.

To sustain this growth and create long-term value for consumers, resilience must be a key focus across manufacturing processes, daily operations, retail and logistic channels, consumer insights, and communication strategies.

As we continue this path of resilience, the sector has experienced significant growth recently, bolstered by the strength of the leading players in the FMCG industry.

However, there are some companies whose share prices have not reflected this overall growth.

Today, we will discuss these companies, which may be undervalued by the market and have seen their share prices decline by nearly 30% from their peak values.

Let’s have a look…

#1 Nestle

Nestle India is a subsidiary of Nestle which is a Swiss multi-national corporation. The company operates in the food segment.

The company is among the top two players in most of its product categories, including milk products and nutrition, beverages, prepared dishes and cooking aids, and chocolate and confectionery.

Nestle owns brands such as Nescafe, Maggi, Milkybar, Kitkat, Bar-One, Milkmaid, Nestea, etc. The company's distribution consists of 10,000+ distributors and more than 5.2 million outlets.

Nestle derives 96% of its revenues from the domestic market and a balance of 4% from exports.

Coming to the financials, Nestle witnessed a muted growth in net sales for the quarter ended September 2024 at 1.3% YoY to ₹5,100 crore.

Operating profit for the quarter stood at ₹1170 crore, while the operating profit margin stood at 23% YoY versus 24%, in Q2 FY24.

The net profit grew to ₹980 crore, versus ₹910 crore, in Q2 FY24. The net profit margin stood at 19.3%, versus 18%, in Q2 FY24. 

Below is the chart showing annual share price performance of the company.

In the past year, the company reached its highest share price of ₹2,778 on 26 September 2024. Currently, the share price is ₹2,214, representing a 20% discount from its highest price over the past year.

Going ahead, management believes that sustained rural growth, premiumisation and focus on innovation and cost efficiency will allow the company to portray better results in FY25.

The company has accelerated its focus on innovating and renovating, launching many new products. Currently, it has 30 new projects in the pipeline.

It is working on developing a diverse range of food products across multiple brands that highlight millet as a more eco-friendly and sustainable food option.

Additionally, the company has doubled its spending on sustainability in sectors such as dairy, plastics, and sustainable sourcing.

#2 Procter & Gamble Hygiene and Health Care

The company is the Indian subsidiary of the American multinational corporation Procter & Gamble. It manufactures and sells branded packaged consumer goods for feminine hygiene and healthcare.

Its portfolio includes popular brands such as Whisper, Vicks, and Old Spice.

The revenue of the company saw a slight decline of 0.3% YoY to ₹1,130 crore.

The operating profit stood at ₹290 crore ₹280 crore , in Q2 FY24. The operating profit margin for the quarter stood at 26%, versus 25%, in Q2 FY24.

The net profit remained flat at ₹210 crore. The net margin grew marginally to 18.7% versus 18.5% in Q2 FY24.

Procter and Gamble’s share price reached a 52-week high of ₹17,745 on 24 July 2024. Currently, the share price stands at ₹14,825, reflecting a 16% discount compared to its highest price over the past year.

Going ahead, the management expresses confidence in the company's ability to delight consumers and drive sustained growth despite external challenges.

It expects rapid growth in the quick commerce segment, with a 22% rise in active users on leading platforms.

Additionally, the management acknowledges ongoing macroeconomic volatility but remains optimistic about the integrated growth strategy's ability to navigate challenges.

It anticipates continued double-digit growth in the feminine care category over the next three years, while focusing on balancing top-line growth with bottom-line margins through productivity and innovation.

#3 Dabur India

Dabur India, an FMCG giant with a well-established household name for over 139 years, is one of the most prolific names in the Indian market.

The company is involved in the production of Ayurvedic medicines and natural products, and now they are a multinational brand that is present in more than 120 countries around the world.

From tasty 'hajmola' to bitter yet effective 'sudarshan ghanvati' medicine to trusted 'chyawanprash', Dabur has a lot of products where it has left a strong impression.

In the September quarter FY25, the topline of the company saw a decline of 5.5% YoY to ₹3,030 crore.

The operating profit also declined by 16% YoY. The operating profit margin also declined to 18% versus 21%, in Q2 FY24.

The bottom-line saw a dip of 18% YoY to ₹4.2 bn. The net margin also saw a degrowth to 13.8% versus 15.8%, YoY.

Dabur India’s share price hit a 52-week high of ₹672 on 20 September 2024. Currently, it is trading at ₹520, which represents a 23% discount to the 52-week high.

Going ahead, the management is optimistic about recovering urban demand, citing base effects and ongoing growth in e-commerce and quick commerce channels.

It also remains committed to investing behind its brands and enhancing distribution capabilities to ensure long-term growth and value creation.

Though the company is facing challenges in the beverages business and a decline in the juices and nectar category due to aggressive pricing from competitors like Campa Cola.

It is implementing a multipronged strategy to ramp up its drinks portfolio and improve affordability through pack price architecture.

Despite of this, the management exhibits confidence in overcoming these challenges, with strategic initiatives in place to enhance profitability, expand market share, and capitalize on the recovery of urban demand.

#4 Tata Consumer Products

Tata Consumer Products is a focused consumer products company uniting the principal food and beverage interests of the Tata Group under one umbrella.

The company's portfolio of products includes tea, coffee, water, salt, pulses, spices, ready-to-cook offerings, breakfast cereals, snacks, and mini meals.

In India, Tata Consumer Products has a reach of over 200 m households, giving it an unparalleled ability to leverage the Tata brand in consumer products.

Coming to its financials, revenue for Q1 FY25 increased by 13% YoY to ₹4,210 crore, supported by contributions from recent acquisitions, including Organic India and Capital Foods.

Its operating profit stood at ₹630 crore, with the operating margins shrinking by 0.3% YoY to 14.9%.

The company's quarterly net profit for Q2 FY25 rose 1% YoY to ₹370 crore. However, this growth was accompanied by margin pressure, decreasing to 8.7%, versus 9.7% YoY.

Tata Consumer's 52-week high was observed on 23 July at ₹1,235.7. The current share price stands at ₹972, representing a 25% discount from its 52-week high.

Going ahead, Tata Consumer Products is focused on becoming a full-fledged FMCG company. It plans to enter new product categories to reduce reliance on its core beverage and food segments.

The company is also conducting pilot programs in food services, pharmacies, and other channels to explore future growth opportunities.

The company has doubled its capex to ₹790 crore for FY25, with significant investments in a new plant in Vietnam. Tata Consumer will continue looking for acquisitions that align with its focus on health-oriented and food products.

While specific acquisitions are not disclosed, it remains open to growth opportunities if they offer financial and strategic value.

#5 Colgate-Palmolive India

Colgate-Palmolive India Ltd is engaged in the manufacturing/trading of toothpaste, toothpowder, toothbrushes, mouthwash and personal care products.

The company's product portfolio includes various SKUs of toothpaste, tooth powder, toothbrush, mouthwash, and personal care products.

Colgate's flagship brand is one of the most recognised brands in India having a penetration of 88% in the domestic market.

The company has 51% market share in the toothpaste segment, 48% in toothpowder, and 30% market share in the toothbrush segment.

The revenue for the September FY25 quarter saw an increase of 10.1% YoY to ₹1,620 crore.

The operating profit stood at 490 croren. While the operating profit margin declined to 31% versus 33%, in Q2 FY24.

The net profit for the quarter stood at ₹390 crore, up from ₹340 crore YoY. The net profit margin for the quarter grew to 24.4% versus 23.1%, in Q2 FY24.

Over the past one year, the share price has seen its highest point on 3 October 2024, of ₹3,890. Currently the share price is trading at ₹2,740, which is 30% discount to its 52-week high share price. 

During the quarter, the company continued investment in advertising and brand building, particularly for the oral health movement and product innovations.

Despite intense competition in the toothpaste segment, particularly in urban areas, the management remains optimistic about driving consistent growth despite macroeconomic challenges.

Looking forward, the management has placed emphasis on revenue growth management to optimize pricing and product mix for sustained profitability.

Conclusion

The Indian FMCG sector continues to experience impressive growth, fuelled by favourable economic and demographic trends, it is clear that not all players in the market have been able to capitalize on these opportunities equally.

Despite the overall resilience of the industry, some companies have faced significant challenges, with their stock prices plunging nearly 30% from their highs.

This drop in value raises concerns about the underlying operational issues, strategic missteps, or market misalignment that could be impacting their performance.

The disparity between the sector's growth trajectory and the poor stock performance of certain firms underscores the importance of a more cautious and discerning approach to investment.

While the FMCG industry remains crucial to the Indian economy, investors must be mindful that not all companies are equally positioned to navigate this growth.

Therefore, it is essential to stay conscious and evaluate any investment opportunity on its merit, ensuring that thorough research and a clear understanding of potential risks are prioritised before making financial commitments.

Investors should also consider corporate governance as one of the criteria for due diligence before considering an investment.

Happy Investing.

Disclaimer:  This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com