Thinking of buying an FMCG stock?
How to read an FMCG stock
Everyday products like tea, soap and biscuits, sold in every town.
How they make money
Make everyday products that people buy again every week.
Sell them through famous brands and shops in almost every town and village.
Earn a little on each pack, but on billions of packs.
Numbers to check
Tap any number for a full lesson with pictures.
- Sales (Revenue) GrowthShows whether people are buying more, or just paying more for the same.
- Operating Profit MarginA strong brand can pass on cost increases, so its margin stays steady.
- Return on Capital EmployedGreat brands need little capital, so the best FMCG firms earn very high ROCE.
- Return on EquityConfirms the brand's strength turns into profit for shareholders.
- Price-to-Earnings RatioSteady businesses often trade at high P/Es. Check that growth justifies it.
- Dividend YieldMature FMCG firms pay out a large part of their profit.
Practice: Sunrise Tea's numbers
Sunrise Tea is a made-up company that sells packaged tea across India. Here's how its key numbers read against the rough guides.
| Number | Sunrise Tea | Rough guide says |
|---|---|---|
| Sales growth | 10% | Steady |
| Operating margin | 20% | Decent |
| ROCE | 17.6% | Good |
| ROE | 15% | Okay |
| P/E | 20x | Middle |
| Dividend yield | 2% | Moderate |
For a real company, check each number over at least five years and against its closest rivals. One year alone can mislead.
Also look at
- Volume growth: more packs sold, not just higher prices.
- Rural demand: villages buy a large share of everyday goods.
- Raw-material prices: tea, palm oil, milk and wheat move the margin.
Red flags
- Sales growing only through price hikes while fewer packs are sold.
- Margins squeezed because the brand can't pass on higher costs.
- Losing customers to cheaper local brands.
Numbers that mislead here
- Price-to-Book RatioA brand's value isn't on the balance sheet, so P/B always looks high.
Other sectors
Banks
Their raw material is money, so they need their own set of numbers.
NIM · Gross NPA · CASA · Capital adequacy
IT services
Their product is people's time, sold mostly to clients abroad.
Sales growth · Operating margin · Attrition · ROE
Pharma
Medicines for India and the world, with regulators watching every factory.
Sales growth · Operating margin · R&D spend · ROCE
For learning only. Example companies are made up, and the rough guides are rules of thumb, not targets. Nothing here is advice to buy or sell any stock.