FMCG analyst at SSKI Nikhil Vora believes that the next round of growth for the FMCG sector will get powered by a lot of front-ended investment by companies. This effectively means innovations, advertising and sales, promotion spends and also overall consumerisation in the economy.
He further states that none of the FMCG company results have been surprising. He feels that most of them have been strong and steady performers.
Excerpts from CNBC-TV18's exclusive interview with Nikhil Vora:
Do you agree for the next few quarters FMCG will show signs of strong sales and profitability?
If one looks at the slightly longer-term trend from FY02 to FY05, one would see that the sector has grown at a single-digit growth track. Now if one looks at last year, the growth has come back to strong double digits at around 15-16%. My thought is that it's a back-ended investment, which helped consumer sector to come back in the face of price guards and down trading.
The next round of growth will get powered by a lot of front-ended investment by companies, which effectively means innovations, advertising and sales promotion spends and also overall consumerisation, which is happening in the economy.
A lot of Indian consumer players like Marico and other Indian companies will up their ante as far as acquisitions are concerned, given the fact that there is still disproportionate cash-on-book.
The
It is quite a contradiction right now. The businesses are doing well, the underlying growth is steady, there is visibility of most of the businesses that we are looking at; including Marico for instance, where we have downgraded the stock. But the fact is that valuations are running ahead of time and we have taken into account the cash-on-book and potential acquisitions, which all these companies can do and the risk of error is pretty much negligible from that level.
The fact is that incrementally going forward, for a lot of raw material, many companies would start to stock in inventory given the fact that some of the raw material are at the lowest levels. I think a lot of companies will start to release stock significantly now, to just hold on to their prices.
From the numbers you have seen so far, which ones have you liked best?
None of them have surprised. I think most of them have been strong and steady performers. So I cannot point out any single company, which has stood out in that sense.
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