Fast Moving Consumer Goods (FMCG) & Consumer Durables: Long-term Best Buys?

Posted byshreyat Thursday 20:56

Hi All,

Acomparison of Nestle and ITC P/E over last 10 years and probable reasons.

AVG. P/E
AVERAGE P/E FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 avarage Total increase
ITC 13.683 15.4888 17.5604 21.1725 29.0785 24.3503 22.112 26.2216 28.8895 30.6497 22.92063 124.00%
NESTLE 29.1115 26.8635 21.3146 28.6407 33.3124 36.0431 35.9551 35.88 44.4404 47.3864 33.89477 62.78%

*The nestle data is for year jan-dec. The data has not been adjusted as a roughapproximation is enough.

Nestle is a better business than ITC the numbers say,so says the market.The market on an average has valued a rupee of Nestle's earning higher than ITC consistently over last 10 years.This is obviously due to the better quality of Nestle's balance sheet and cash flow.Another reason which i stronglybelieve has led to this is thatNestle Generates larger portion of its revenue from consumer monopolies than ITC. Nestle generates 85% of its Net Revenue from consumer monopolies: ~40%necessity(Baby food formula,Milk powder etc) and ~45%mildaddiction or habit(confectioneries,coffee,Noodles),where as ITC generates ~48% of its Net Revenue from consumer monopolyaddiction(cigarette).