FMCG Stocks
Outlook for the week – 13 to 17.10.2014
( www.rupeedesk.in )
Shares of fast moving consumer
companies are seen trading with a positive bias in the week
ahead as lower crude prices are
seen benefiting most companies in the sector, especially smaller
players.
While all companies will benefit
from lower crude prices, smaller FMCG companies like Jyothy
Laboratories that do not
outsource most of their production, will see a larger and faster flowthrough
of lower raw material costs.
December delivery Brent crude oil on the ICE was at $89.39
a bbl, down 9.2% from the
previous month.
Lower crude oil prices help FMCG
companies as key raw materials like liner alkyl benzene,
which is used in making
detergents, and high-density polyethylene, which is used in making
packaging material, are derived
from crude.
We believe that while stocks may
run up, factoring in lower commodity prices as early as next
week, it will take a lag of at
least three to five months for the benefit to reflect in the results of
the companies.
The input costs scenario remains
favourable, with correction in the prices of palm oil, titaniumdioxide,
menthol oil and kardi oil.
However, we expect gross margin benefits to start accruing with a lag of 1-2 quarters,
depending on inventory and hedges.
