Patanjali Ayurved captures market making slowdown in FMCG stocks
NewDelhi,Oct25:The shares of large FMCG companies have long been a favourite of many investors including veteran investor Ramesh Damani for their stable earnings and margins, and higher dividends. But not anymore for Mr Damani.
“I am not buying the traditional FMCG stocks,” says Mr Damani, a member of stock exchange BSE,the reason being Patanjali Ayurved.
Referring to Patanjali’s entry into the FMCG sector, Mr Damani told NDTV Profit: “What is happening in the FMCG sector is that there has been a new entrant that is making waves, particularly in categories like toothpaste, soaps and honey.”
Yoga guru Ramdev’s Patanjali Ayurved is targeting to double its revenue to Rs. 10,000 crore in the current fiscal year (2016-17) from Rs. 5,000 crore in the previous year.
“The new entrant (Patanjali) is working with lesser margin and more brand loyalty. That has set the cat among the pigeons. That is the reason for slowdown in FMGC stocks,” Mr Damani added.
In the past three months, the BSE index for FMCG stocks – FMCG BSE – has fallen two per cent, underperforming the Sensex’s 0.50 per cent rise during that period.
This performance of the FMCG stocks comes as a surprise at a time when analysts are betting on the consumption theme to drive India’s economic growth higher – in the wake of good monsoon and Seventh Pay Commission awards.
Referring to the traditional big FMCG companies, Mr Damani said: “These companies have enjoyed a virtual monopoly for many years, with fairly decent growth rates and very stable margins.”
“Because the new entrant is disrupting the rules of the game with lesser margin and guerrilla marketing, I think that some of their stable profitability that we have seen for years could be under threat.”
Mr Damani said that investors could look at playing the consumption theme through stocks of aviation companies, oil marketing companies and travel and tourism companies “as opposed to the conventional soap, detergent, liquids way we played it”.
Perhaps investors could look at FMCG “in a more dynamic way”, he said.
Giving an example, Mr Damani said, “It is possible that the new oil marketing companies will be new FMCGs. They have a lot of visibility of earnings, they have of a lot of superior cash flow because petroleum products have been deregulated. They have some pricing power. ”
Mr Damani said that he is “transiting from using the proxy of FMCG as the traditional large companies like Lever (HUL), Dabur etc. to a newer set of businesses which share the same characteristics: good earnings visibility, good cash flow and good promise of dividend yields”.