FMCG Stocks Outlook for the week – 03 to 07.10.2016 May correct more; ITC, HUL seen consolidating

FMCG Stocks Outlook for the week – 03 to 07.10.2016
May correct more; ITC, HUL seen consolidating )

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Stocks of fast moving consumer goods companies may correct further in the coming week, as the
sector faces pressure from rising cost of raw materials. Sales during the coming festival season are
unlikely to be high, and this might exert further pressure on FMCG companies. Q2 (Jul-Sep) has no
trigger to help sales as such. Growth in this quarter will be lower than Q1 (Apr-Jun). The impact of
monsoon will be visible at the earliest from Q3 (Oct-Dec). The demand for personal care products
could see an uptick in the December quarter in case the winter sets in early.

Performance of personal care products in Oct-Dec quarter was good in 2015-16 (Apr-Mar). It could
repeat this year if rural demand improves. The sector could see a growth of 3-3.5%. Among major
FMCG players, ITC Ltd and Hindustan Unilever Ltd are seen consolidating in the coming week. The
consolidation for Hindustan Unilever, India's largest FMCG company by volume, however, could be
short-lived, as it is expected to lag in growth in the September quarter.

The inventory turnaround for Hindustan Unilever is not happening. Its oral care and deodorants
businesses are not working well. Hindustan Unilever sells oral care products under the Pepsodent and
Close-up brands, while it sells deodorants under the Axe brand. Though Patanjali Ayurved Ltd has
consolidated its position in the oral care segment, the Haridwar-based company is still behind Dabur
India Ltd, which enjoys a share of 25-50% in this segment. As the market penetration increases,
Dabur will regain market share in some segments like Chyawanprash. There will be no further