The FMCG stories

More precisely, i am going to talk about the FMCG giants in India - HUL, Colgate and Dabur.

HUL comes at a PE of 24
Colgate comes at a PE of 21
Dabur comes at a PE of 21.

It might seem odd for some that a value investing blog mentions about stocks which comes at a PE of in excess of 20.

But what made me write this was the underlying business and the competitive advantages these companies hold in my view.

Colgate
I am pretty much sure i am going to buy Colgate for my morning brushing even if the world is going to end next month. Colgate has a market share of about 50% in India. Moreover, it has negative working capital requirements, which to my mind implies they are using other person's money to generate profits for themselves. The only requirement is for the fixed assets and which will not change quite often. No wonder none of these guys have gone for capital expansion.

For instance, the Mar '08 EBIT is about Rs.270 crores for Colgate, and the capital employed, in terms of running the business the fixed assets and working capital component comes to about Rs. 90 crores!

Even the return on equity is well above 150% for these giants.

HUL
If anything, the same story gets bigger for HUL considering its range of products and the dominance and distribution network it has in the market.

Dabur
More or less the same story though it is not quite in the same league as HUL and Colgate considering its current price of Rs. 85. I see that its 52 week low had been Rs.60 at which price it would've made sense to buy Dabur.

Amazing stories indeed!