INSUBCONTINENT EXCLUSIVE:
The middle class is expected to drive 75% of the consumer spending by 2030.The year 2021 ended on a good note for the markets and investors
Fintech, electric vehicles (EVs), and digital sectors boomed, and the story looks even more promising for them in 2022.While these new
themes hogged the limelight, a sector that was overlooked was the consumption sector.Let's be honest…you rely on consumer durable goods
every day, be it daily essentials such as food and beverages, or household and home care products such as paper goods, alcohol, tobacco, and
cosmetics.The future is bright for these companies
Expected growth is pegged at a of 12% CAGR over the next 5 years for consumer durables. After all, India is a burgeoning middle-class
The middle class is expected to drive 75% of the consumer spending by 2030.Needless to say, a rising middle class with more disposable
income and a shift towards incremental spending are key factors in the steady growth of FMCG in India
This is probably why despite the restrictions imposed due to Covid-19, and rising costs of materials, trade in 2022 has rebounded to near
normalcy for the consumer goods industry. So, why not participate in this new growth story?Let's look at the top 5 consumptions stocks in
India which should be on your watchlist in 2022.These stocks are obtained with the help of Equitymaster's stock screener.#1 Orient
ElectricThe journey of Orient Electric has been an interesting one
A part of the CK Birla Group, it started out as Orient Fans
It was inducted in the group in 1954 as a division of the Orient Paper and Industries (OPIL).Orient Electric (OEL) became an entity of its
own in March 2017 when the company demerged its electric business from OPIL
This was to increase focus, accountability, and shareholder value for both businesses.Since 2017, OEL has consolidated its position as one
of the leading players in the consumer electric goods segment in India
With around 18-20% market share in the Rs 8,000 crore fan industry in India, Orient is also the largest exporter with a 60% share of the
export pie.The company has grown in leaps and bounds over the years
Right from patenting its revolutionary PSPO technology in 1990, it has diversified its product portfolio by venturing into lighting, home
appliances and switchgear businesses.However, OEL still derives the bulk of its revenue from the fan business.Orient has smartly kept up
with the rising demands of the middle class in India
Not only has it forayed into a range of energy efficient products but has also entered into an exclusive strategic alliance with Italy's
De'longhi group to sell its premium international brands in India.The partnership enabled OEL to expand its appliances portfolio in the
This led to doubling its sales from Rs 9.3 crore in 2020 to Rs 18.17 crore in the fiscal year 2021.Today, the company is practically debt
free and has a healthy interest coverage ratio of 8.81
With efficient cash flow management and an improvement in capital structure, the net profit was Rs 38 crore in 2021.So, if you are looking
to add a company to your watchlist with a history of profitable growth, then Orient Electric with an average 23.3% profit growth should
certainly be your top choice.#2 MaricoMarico was incorporated in 1988 as Marico Foods
It was later rechristened as Marico Industries in October 1989
The company has popular brands like Parachute Coconut Oil and Saffola in its kitty.Today, it's one of India's largest consumer goods
companies operating in the global beauty and wellness space with a strategic presence across key international locations.In its 30 years of
operations, Marico has firmly established itself as a market leader offering over 90% of daily use items as part of its product
line.Standouts among them have been the Parachute and Saffola
The company has captured a 61% volume share in the hair oils category and 81% volume market share in the super premium refined edible oil
category in 2021.With strategic acquisitions of 55% in Zed Lifestyle in 2020, the parent company of start-up brand Beardo, and its strategic
investment in the brand Just Herbs, Marico confirmed its commitment to expanding its product portfolio.Overseas markets contribute a 23%
Sales in financial year 2021 remained steady despite the disruptions of the pandemic
This is largely due to its market position in the core hair-care segments in Bangladesh, the Middle East, and North Africa.Revenue growth
for Marico in financial year 2022 is likely to be supported by the recovery in urban demand and sustained performance across its core
The financial position of the company is healthy with surplus cash of Rs 1,300 crore.Marico has been maintaining a healthy ROCE of 39.3%
It has minimised its debt to equity ratio to almost nil
With strong distribution across domestic and international markets, Marico recorded net sales of Rs 1,870 crore in December 2021.Despite low
revenue growth of 7-% for the past 3 years, the company has a healthy liquidity position with a current ratio of 2.11.Historically, Marico
has done well for its shareholders with a 23% CAGR since listing in 1996.Therefore, if you are looking to diversify - into the beauty and
wellness space, then Marico is a strong contender for the best consumptions stock to watch out for in 2022
#3 Polycab IndiaThe worldwide wires and cables market is estimated to reach $231.9 billion in 2027
The prospect of this growth is also supported by global drivers for the industry
These include rising urbanisation, industrialisation, and growing infrastructure needs.Polycab India is the country's numero-uno integrated
manufacturer and supplier of state-of-the-art wires and cables
It has a 20%-22% share in the organised segment.Initially operating as part of the manufacturing unit from the Halol plant since 1964, the
business was formally incorporated in 1996.Since then, Polycab has forayed into the switches segment and diversified further into fans and
LED lighting segment setting up manufacturing units at Nashik and Roorkee.Wires and cables still dominate sales contribution by as much as
81% whereas fast moving electrical goods contribute around 11.5% to the overall revenue.Polycab's strong brand presence and market position
are supported by its pan India dealer-distributor network of over 4,000 entities.Moreover, its strategic presence in engineering,
procurement and construction (EPC) backs its core business
The confluence of both paves the way for the company's long term growth.With an expansive manufacturing presence in India, global
operations, and a bouquet of best-in-class products, the company recorded revenues of Rs 8,926.5 crore and a PAT of Rs 885.9 crore in
2021.Even though Polycab has shown poor revenue growth of 8.9% for the past 3 years, the company today is virtually debt free
It decreased its debt by Rs 53.69 crore in 2021.Maintaining a healthy ROCE of 27.1% over the past 3 years, the financial risk profile for
Polycab India is expected to remain fairly healthy.Higher demand from export markets, conducive central and state government initiatives,
increasing cash accruals, and strong liquidity puts Polycab India at number three on our list of top consumption stocks in 2022.#4 Hindustan
UnileverNo prizes for guessing the next stock on our list
You probably thought of Hindustan Unilever when you clicked on this article.One of India's largest FMCG companies, Hindustan Unilever (HUL)
It is a subsidiary of Unilever Plc that holds a 62% stake in the company.With a product portfolio spanning daily use essentials like
personal care, fabric care, skincare, haircare, oral care, beverages, dairy-based products and water purifiers, HUL is a part of everyday
life of millions of consumers in India and abroad.14 of its brands like Lakmé and Dove today generate over Rs 1,000 crore in revenue and
have been featured as part of ‘Top 100 Brands in India' and ‘Most Trusted Brands 2020'.HUL's strong 50+ brands generated net sales of Rs
From a revenue share perspective, beauty and personal care products contributed 44%, the home care category contributed 34%, and foods and
refreshments came in with 19% of the total revenue.The merger with GlaxoSmithKline (GSK) Consumer Healthcare with assets like Horlicks,
Maltova, Boost and Viva further strengthened HUL's market position in the food and refreshment segment
It also contributed to medium term revenue diversification.The company shifted its focus to a purpose-led, future-fit business model
This was designed to drive better performance delivering competitive, consistent, responsible and profitable growth for HUL.With an enviable
debt free balance sheet, the company's sales have grown at a CAGR of 7.8% and the PAT has grown at a CAGR of 14.4% over the last 5
years.HUL's seasoned leadership managed the challenges of Covid-19 and it was able to sustain strong cash generation
With high liquidity, HUL announced an interim dividend payout of Rs 15 per share for 2022.HUL has been maintaining an average operating
margin of 20.3% in the last 5 years with a healthy interest coverage ratio of 98.1
An 18.1% profit growth in 2021 makes HUL a consumption stock that you must look at this year.#5 Nestle IndiaNestle India has a 108-year long
It's one of India's largest FMCG players
Nestle S.A is the parent company and holds a 62.7% stake in the Indian business.The company is a market leader in the food and refreshments
segment with a standout brand like Maggi with several sub-brands under this core umbrella
Within its portfolio, Nestle has captured the market leader position for 85% of its products.Despite increasing competition and the Maggi
fiasco in 2015, the company continues to maintain its leadership position across several foods and refreshment categories.Nestle India
recorded net sales of Rs 1,46,340 crore in 2021 with multiple product lines.46% of its revenue generation comes from dairy products and
weaning foods, 31.8% from prepared dishes and cooking aids, 14.8% from chocolates and confectionery and 12% from beverages.Despite
disruptions in the supply chain as a result of the pandemic, the domestic business continued to flourish with double digit momentum
The overall revenue for the company grew by 10% YoY.A significant contributor to this growth rate is Nestle India's access to its parent
company's proprietary technology and strong research and development capabilities
This is has enabled Nestle India to keep innovating to meet consumer needs.Moreover, the company was able to launch 80 new products in the
last 5 years which has added to the revenues.Nestle India has a robust export business where 46% of its sales is generated from the American
geographies, 29% from Europe, MENA and 26% from Asia, Oceania, and the sub-Sahara region.The financial risk profile for the company is
It is supported by strong operating cash flow and a comfortable capital structure
The company has been maintaining a healthy ROCE of 131.47% over the past 3 years and is almost debt free.The company's PAT has grown at a
CAGR of 13.6% in the last 5 years
Clearly, all these factors make Nestle the last consumption stock that should be on your 2022 watchlist.Why India's growth story relies
heavily on the consumption theme…Even though consumption stocks may not be on your radar right now, you have to agree that these stocks
offer consistent returns over the years
More so in volatile periods…These companies usually have a good track record of sales, have an established market presence, and offer
hefty dividends.Even in difficult times, they are able to post consistent sales and show growth.In a volatile market, these stocks give your
portfolio the much-needed depth and balance.The above list of stocks was obtained with the help of Equitymaster's Stock Screener
Don't go by this list alone
Do your own research and filter out companies that are aligned with your investment portfolio.Be sure to check if the company has a good and
consistent track record of reporting profits and paying consistent dividends over the last 5 years
Last but not least, make sure you invest in a company that has minimal debt and robust cash flow.With a rising population, consumption seems
like the best theme to participate in the India growth story.Just like penny stocks, the name of the game is to wait it out because
consumption stocks also have the potential to deliver high returns in the long term.Happy Investing!Disclaimer: This article is for
information purposes only
It is not a stock recommendation and should not be treated as such
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