Is FMCG is a beneficiary of cash ban or not: Brokerages' view
The blame for the current uncertainty in the fast moving consumer goods (FMCG) space can't be placed at the doors of demonetisation, says an Edelweiss report. While conceding that some pain is due to the cash ban, the report finds the sector will also benefit immensively from it.
Factors like the upcoming Goods & Services Tax (GST) Bill and shift from unorganized to organized within the industry will benefit FMCG sector, as per the report.
“In our view, the sell off post demonetisation presents a good opportunity to accumulate select consumer companies. Our top picks in the sector are Asian Paints, Berger, Britannia and Pidilite. We also like ITC and Nestle,” Edelweiss says.
Edelweiss report mentions that post demonetisation FMCG companies will focus more on improving direct reach to people unlike earlier where they were focusing on increasing ‘throughput per store’.
Demonetisation has also led to destocking of the channel, which will impact near-term growth prospects. But this disruption will help the sector prepare for GST.
However, Ambit is negative on the sector and is of the view that FMCG sector is yet to factor in the impact of demonetisation and GST. Sales in the sector is likely to be hit by weak rural demand, liquidity crunch and lowering of discretionary spend.
On the other hand, factors like higher margin to vendors, unfavorable crude and rupee movement and limited pricing power will impact the sector’s margins.
Ambit is anticipating a 10-20 percen hit on demand due to cash crunch. While recovery will begin in the first quarter of FY18, it will be weak. Sector margins will be impacted by 30-50 basis points (bps) on back of higher supply chain costs and another 10-80 bps due to rising crude and depreciating rupee, the report mentions.
Ambit further said that only revival in distribution, stabilisation of margins and volume growth can turn them positive on the sector.
Source: Moneycontrol
Factors like the upcoming Goods & Services Tax (GST) Bill and shift from unorganized to organized within the industry will benefit FMCG sector, as per the report.
“In our view, the sell off post demonetisation presents a good opportunity to accumulate select consumer companies. Our top picks in the sector are Asian Paints, Berger, Britannia and Pidilite. We also like ITC and Nestle,” Edelweiss says.
Edelweiss report mentions that post demonetisation FMCG companies will focus more on improving direct reach to people unlike earlier where they were focusing on increasing ‘throughput per store’.
Demonetisation has also led to destocking of the channel, which will impact near-term growth prospects. But this disruption will help the sector prepare for GST.
However, Ambit is negative on the sector and is of the view that FMCG sector is yet to factor in the impact of demonetisation and GST. Sales in the sector is likely to be hit by weak rural demand, liquidity crunch and lowering of discretionary spend.
On the other hand, factors like higher margin to vendors, unfavorable crude and rupee movement and limited pricing power will impact the sector’s margins.
Ambit is anticipating a 10-20 percen hit on demand due to cash crunch. While recovery will begin in the first quarter of FY18, it will be weak. Sector margins will be impacted by 30-50 basis points (bps) on back of higher supply chain costs and another 10-80 bps due to rising crude and depreciating rupee, the report mentions.
Ambit further said that only revival in distribution, stabilisation of margins and volume growth can turn them positive on the sector.
Source: Moneycontrol
Thanks for sharing your valuable information on this article. This post is helpful to many people.stocks4all is a stock related website which provides all stocks related information like new stocks and shares available in the stock market.
ReplyDeleteshare market
tax in India