Super FMCGs! Mrs Bectors to Jyothy Labs—LKP bets on 3 consumer staples over robust volume, eyes 20-30% returns | Stock Market News

Fast-moving consumer goods (FMCG) companies (largely staple companies) have struggled to improve their volume growth in the last few years due to sluggish demand growth, especially in rural areas. Domestic brokerage LKP Securities noted large consumer staple companies reporting an average mid- to high single-digit volume growth between FY20-24, unlike a few smaller size FMCG companies, which have, on average, delivered low to mid-teens volume growth. 

‘’This shows that these companies are notably gaining market share and growing at least by 1-2x faster than their larger peers. Based on this, we have identified companies with robust volume growth, presence in bigger TAM (Total Addressable Market), ability to compete with large companies, and strong fundamentals,” said LKP Securities.

The brokerage has termed these companies ‘Super Fast Moving Consumer Goods’ or Super FMCGs. LKP Securities’ top FMCG stock picks include Mrs. Bector Food Specialities Ltd, CCL Products, and Jyothy Laboratories Ltd.

FMCG Sector Review

Most staple companies posted mid to high single-digit revenue growth despite facing challenges such as severe heatwaves in the northern region, heightened competitive intensity, and the general election impact. 

The growth was primarily led by a rural recovery, with rural markets outpacing urban growth. Rural demand continues to show steady improvement, with the rural market now surpassing urban areas, largely due to distribution expansion and region-specific launches. 

The sector has witnessed growth in rural consumption in volume terms, outpacing urban consumption for the first time in five quarters in January-March. According to Nielsen, rural consumption grew 7.6 per cent year-on-year (YoY) in Q1CY24, overtaking that in urban areas, which stood at 5.7 per cent.

FMCG products have the highest penetration in rural areas and have been impacted the most compared to other consumer baskets. The mass segment has a large user base but slow income growth. Such high inflation has reduced the affordability of consumption. Households are over-indexed on food in their cost mix. With softer general inflation and price cuts for FMCG, the income-to-cost mix gradually stabilised over the last 6-12 months.

The key growth drivers for the Indian FMCG sector are as follows:

-Rapid rise in premiumisation

-Growing adoption of technology

-Increasing marketing activities through social media influencers

-Surging rural penetration

-Rising E-commerce growth