Should you go for ITC and the FMCG pack? Sudip Bandyopadhyay answers
![](https://m.economictimes.com/thumb/height-450,width-600,imgsize-105677,msid-91647829/both-hdfc-hdfc-bank-good-buys-at-current-level-sudip-bandyopadhyay.jpg)
Synopsis
“ITC is a completely different story compared to what an HUL or a Tata Consumer is. All the three components of ITC business have been doing well and that is creating excitement in the market. On the other hand, the fate of other consumer goods companies to a great extent depends on what happens to rural consumption.”
I definitely think it is a good space to be in for the long term, but I am very sure that this is not the right time to nibble in. Look at what happened to Dr Lal Path Labs, the margins are definitely under pressure. They may pick up somewhere in the next quarter or so but that is not going to change the ground realities.
Tata 1mg is talking about introductory pricing which is significantly lower than the established players. There are companies like MediBuddy which has raised a lot of money; they are talking about establishing a diagnostic chain. Lupin has already started diagnostic chain trials in eastern part of India and all this competition is going to definitely lead to margin shrinkage for the established players.
Unlock Leadership Excellence with a Range of CXO Courses
Offering College | Course | Website |
---|---|---|
Indian School of Business | ISB Chief Technology Officer | Visit |
IIM Lucknow | Chief Operations Officer Programme | Visit |
Indian School of Business | ISB Chief Digital Officer | Visit |
But while the margin is improving, structurally there are market forces which are bringing down the margin significantly because of the pricing pressure and we have to keep that in mind and watch this space carefully for the long term but this is not the right time to get into it.
How long a lean patch are you expecting from the markets? Is there no clarity so far?
It is very difficult to predict when the market will have a turnaround. The reality is that historically also, we will have to wait for the market to digest that the rate increase cycle is over. As and when the market comes to that realisation, things will start turning around.
Stocks Recommendations
What is your take on the entire FMCG pack?
ITC is a completely different story compared to what an HUL or a Tata Consumer is. There has been an excellent move in the tobacco business as far as ITC is concerned. They have started gaining market share, the volume has been robust and that has led to what I believe primarily is an upswing in the ITC share price.
The third business which has gained significantly is the paper and paper boards. Even standalone paper companies are doing very well. The share market performance also has been great. So, ITC has a very mature business there and the three components of ITC business have been doing well and that is creating excitement in the market.
Leaving aside ITC, the fate of other consumer goods companies to a great extent will depend on what happens to rural consumption. If there is a pressure on rural consumption as has been expressed by some of these managements, we will have to be a bit cautious but our view is that assuming the monsoon is good, rural consumption will be back.
Inflation does impact rural as well as urban but the impact of inflation on rural consumption will be lower. They may downtrade a bit but by and large, rural consumption will be robust if the monsoon is good and that should help companies like HUL which have done significant readjustment recalibration by reducing the pack size and taking a price hike to handle the cost pressures.
So we are bullish long term on HUL. If an investor is building his portfolio, HUL can definitely be bought, taking the opportunity of these corrections. As far as HUL is concerned there is one more interesting thing which is happening and that is the GSK portfolio. The full benefit of the GSK portfolio is yet to come to HUL and we believe over the next three-four quarters we will see that. I will be a bit cautious on other FMCG companies at this stage. I will wait and watch before taking a call.