Four consistent performers on BSE

Last Updated: Wed, Jan 02, 2013 06:27 hrs

Since January 2008, while the Sensex has had a mixed run and given negative returns for two out of five years, there are four scrips in the BSE 500 universe that have given positive returns for every year over this period. The outperformers on the consistency parameter are Hindustan Unilever Ltd (HUL), Godrej Consumer Products Ltd (GCPL), Colgate Palmolive (India) Ltd and PI Industries Ltd.

Three of the four in the list belong to the fast-moving consumer goods (FMCG) sector. The stock of agro-chemicals firm PI Industries is the stock that has made its investors richer over the past five years. The scrip has grown 18.3 times to Rs 560 a piece from Rs 31 as on December 31, 2007. On the other hand, GCPL, Colgate and HUL's share prices have multiplied by 5.3, 3.8 and 2.5 times, respectively.

Soaps, hair colour and home insecticides maker GCPL is the only stock which has outperformed the Sensex every year since 2007. The remaining three have managed to beat the index in four out of five years. Going forward, analysts remain upbeat on the business prospects of the companies. They suggest that investors await a price correction to enter the FMCG scrips.

PI Industries offers strong revenue visibility over the next two-three years on the back of new product launches. The management expects to double its FY12 revenue (Rs 879 crore) to Rs 1,750 crore by FY15, driven by strong outlook for its plant protection and custom synthesis businesses. Analysts believe growth in the custom synthesis business could act as a key catalyst for PI Industries, enabling further re-rating of the stock. Most analysts have a buy rating on the stock and expect it to clock upsides of up to 20 per cent from current levels.

HUL has witnessed volume moderation in recent quarters in sync with the weak demand scenario. However, analysts expect it to hold on to its volume growth in the medium term, driven by increasing rural penetration, new product launches and focus on high-margin premium products.

"HUL is aggressively investing in categories that will pay rich dividends from a three-to-five year perspective. We also expect HUL to be a key beneficiary of opening up FDI (foreign direct investment) in retail as it has higher market share in modern trade against others in the consumer space," says Abneesh Roy, associate director - institutional equities-research at Edelweiss Securities. However, given the strong run-up in its price, analysts believe significant upsides will be capped.

GCPL has been gaining from strong traction in its domestic home insecticides business, as well as inorganic growth. Further, cross-pollination of its products across geographies will drive future growth. Analysts expect its balance sheet to improve as the company is likely to turn net cash positive by FY15 (debt/equity of 0.5 times in FY12) led by healthy free cash-flow generation. Consequently, GCPL's return on equity is set to improve to 24 per cent in FY15 from 18 per cent in FY12. On the flipside, any slowdown in the international markets and significant competition in the insecticides business remain key monitorables.

All figures in % PI Industries HUL GCPL Colgate Sensex
CAGR FY07-12 558.00 530.00 721.00 1,563 19,580
Sales 21.79 13.62 38.61 15.75 -
Ebitda 43.37 10.14 42.25 23.63 -
Net profit 88.96 8.13 39.14 22.76 -
Stock returns (CY)
2008 30.8 17.0 1.9 0.2 -52.4
2009 121.7 5.8 90.0 61.5 81.0
2010 176.8 18.0 45.8 31.7 17.4
2011 103.5 30.6 0.1 14.3 -24.6
2012 12.1 30.7 87.4 58.0 25.7
Source: BS Research, Capitaline CAGR: Compounded annual growth rate, CY: Calendar year
In Rs crore PI Industries HUL GCPL Colgate
Net sales 1,375 31,278 7,459 3,597
% change y-o-y 27.4 16.6 19.1 16.6
Ebitda margin (%) 18.3 13.6 18.6 20.6
Y-o-Y change (bps) 40 20 140 60
Net profit 159 3,753 948 620
Y-o-Y change (%) 43.8 15.4 25.0 18.0
P/E (x) 8.7 29.9 27.0 34.4
All figures are FY14 estimates Source: Analyst reports

Consistent market share gains have enabled Colgate cement its leadership position in the toothpaste category. This was the prime reason why the stock made new record highs many times in 2012. "We are enthused by Colgate's constant market share gain and resilient price-led growth despite a tough scenario. On account of Colgate's dominating presence in the oral care segment and postponement of P&G's (Procter and Gamble) entry, we have rationalised advertising expenses assumptions, thereby increasing the Ebitda (earnings before interest, taxes, depreciation and amortisation) margin expectation by 30 basis points for FY13 and FY14 each," believe Pritesh Chheda and Harsh Mehta of Emkay Global. Its focus on premium products such as mouthwash will also drive future growth.

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