# FMCG, consumer staples, branded consumer and QSR — sector playbook

Use this when: the company sells a branded product or meal to an end consumer through a distribution network or store estate — packaged foods, beverages, home and personal care, tobacco, dairy, edible oils, beauty, innerwear/footwear/apparel brands, jewellery, QSR chains, and D2C consumer brands.

This is the sector where the generic ratio checklist does the most damage, because the two assets that generate all the value — the brand and the route-to-market — never appear on the balance sheet. Every capital-employed ratio is therefore either meaningless or actively inverted, and the sector's best businesses look "risky" on working-capital rules and "expensive" on every multiple screen. Your job is to replace balance-sheet analysis with franchise analysis: volume, reach, penetration, share, and the honesty of the channel. Get the decomposition of growth right and most other conclusions follow.

## Contents

1. [Why the generic ratio set fails here](#why-the-generic-ratio-set-fails-here)
2. [The metrics that actually matter](#the-metrics-that-actually-matter)
3. [How to value companies in this sector](#how-to-value-companies-in-this-sector)
4. [Peer set construction](#peer-set-construction)
5. [Sector-specific red flags](#sector-specific-red-flags)
6. [Cycle and structural context](#cycle-and-structural-context)
7. [India vs global notes](#india-vs-global-notes)
8. [Checklist](#checklist)

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## Why the generic ratio set fails here

Work through these before you quote any standard ratio in your output. In most cases the correct action is to suppress the metric entirely rather than caveat it.

**ROCE and ROE — structurally meaningless as a screen, and anti-comparable across peers.** Internally-generated brands are expensed as incurred, never capitalised. Indian FMCG additionally runs heavy third-party (3P) contract manufacturing and negative working capital, so the denominator is close to nothing: quality Indian staples routinely print ROCE of 60–200%. ROE is inflated further by buybacks. In the US, several large staples carry *negative* book equity after decades of buybacks and spin-offs, making ROE and D/E undefined or nonsensically negative. Worse than noise, it is inverted: a company that **built** its brands carries them at zero and shows 80% ROCE; an identical company that **bought** the same brands carries goodwill and shows 12%. A ROCE ranking scores the acquirer as the worse business purely because of accounting. If you must use returns, compute ROIC on tangible capital *and* on a brand-adjusted base (capitalise ~5 years of A&P at, say, a 5-year amortisation) and report both, or skip it.

**D/E — a dead variable in Indian staples, and an exclusion rule in developed markets.** Almost the entire listed Indian staples universe is net cash, so D/E has zero discriminating power. Abroad the opposite problem applies: LBO-descended and serially acquisitive staples run 3–5x net debt/EBITDA *by design*, and a "D/E < 0.5" filter rejects most of the investable set. Use **net debt/EBITDA** and, for store-based names, **lease-adjusted net debt/EBITDAR**. Interest coverage is uninformative for the net-cash majority — do not report a 400x coverage ratio as a finding.

**OPM in isolation — actively misleading, because A&P is the real capex and is expensed.** Any FMCG company can manufacture a 150–200bps margin beat next quarter by cutting advertising and promotion, mortgaging future volume for reported EBITDA. The generic checklist rewards exactly that behaviour. OPM is also structurally non-comparable across categories: personal and oral care 20–28%, packaged foods 12–18%, dairy and edible oils 4–8%, distribution-led models lower still. Comparing a dairy company to a soap company on OPM produces garbage. Always pair OPM with A&P intensity and gross margin.

**P/E screens — permanently exclude the sector, and a low P/E here usually signals decline.** Indian staples have traded at 40–70x for two decades; developed-market staples at 18–25x. A "P/E < 25" filter deletes the entire Indian consumer universe forever. Inside the sector, a single-digit or low-teens P/E almost never signals value — it signals terminal category decline (tobacco under tax escalation, packaged carbs, legacy hair oil) or a governance discount. P/E is interpretable only against the stock's own long-run history and the sector index.

**P/B — the single most useless ratio here.** Quality staples have traded above 50x book. Book value captures factories and working capital, the least important part of the enterprise, and is systematically *higher* for the weaker, acquisitive operator carrying goodwill. Never rank on it. Never flag "P/B > 10" as expensive.

**Current ratio and working-capital rules — inverted.** The best FMCG businesses run *negative* working capital: distributors pay cash or on 7–21 day credit while suppliers are paid in 60–120 days. A current ratio below 1.0 is a sign of channel power, not distress. A "current ratio > 1.5" rule penalises the highest-quality names and rewards those stuck financing their own channel. Judge liquidity on cash conversion cycle trend and net cash, not on the current ratio.

**Undecomposed revenue growth — the classic trap.** Reported value growth of 10% can be +12% price/grammage and −2% volume: the franchise is shrinking while the P&L looks healthy. Only volume shows whether more consumers are consuming more. Never report revenue growth in this sector without attempting the volume/price-mix split.

**Asset turnover and fixed-asset productivity — distorted by 3P manufacturing.** A company that outsources 70% of production shows spectacular asset turns and a company that owns its plants shows poor ones, with no difference in economics. India's tax-incentive manufacturing locations (legacy area-based exemptions, and now the concessional new-manufacturing rate) further make the effective tax rate a moving target unrelated to operating quality.

**EV/EBITDA — near-redundant where the generic checklist assumes it is essential, and vice versa.** For asset-light staples D&A is tiny, so EV/EBITDA collapses toward EV/EBIT and adds nothing over P/E. It becomes essential precisely for the acquisitive, levered names carrying large acquired-brand amortisation — the opposite of the default assumption.

**FCF — usually clean here, but capex is not the whole investment.** Staples convert well, so FCF is a good honesty test on reported profit. But remember that the true maintenance investment (A&P) sits above the FCF line, so a company harvesting its brands shows *better* FCF while getting weaker. Read FCF alongside A&P intensity and volume.

**Ind AS 116 / IFRS 16 breaks every store-based margin series.** From FY20 (India) / 2019 (IFRS, 2019–20 US GAAP ASC 842 for lessee balance sheets), rent moved out of EBITDA into depreciation and interest. QSR and retail EBITDA margins jumped 500–900bps overnight and ROCE fell on the newly recognised right-of-use asset. Any margin or return series straddling FY19 is broken and must be restated to a pre-lease-standard basis before comparison.

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## The metrics that actually matter

Ranges are **indicative only**. They vary by market, category, cycle and reporting period. A company's own 5–10 year history and its direct sub-sector peers always override any absolute band quoted here.

| Metric | Definition / how to compute | Indicative healthy range | Why it matters |
|---|---|---|---|
| Underlying volume growth (UVG) and volume vs price/mix split | Growth in units or tonnage, reported separately from price and mix. India: "UVG" or domestic volume growth in the quarterly release and concall. Global: "organic growth = volume/mix + price". | India staples 5–8% sustained UVG, >8% exceptional; DM staples 1–3%. Over a cycle at least half of value growth should be volume. | Price growth mean-reverts with input costs and gets competed away; volume is the only evidence consumers are buying more. It is the hardest number to manipulate — which is why weakening managements quietly stop disclosing it. |
| Gross margin, plus the GM-to-A&P bridge | GM = (Revenue − raw material & packaging)/Revenue. Bridge = how much of any GM expansion was reinvested in A&P vs dropped to EBITDA. | India: personal/home care 50–70%, packaged foods 35–45%, dairy/edible oils 12–20%. DM branded staples 35–50%, beauty 65–80%. In an input-deflation year expect 40–60% of the GM gain reinvested. | GM is the cleanest read on pricing power and premiumisation. The bridge separates managements building the brand from those harvesting a commodity tailwind and calling it structural margin. |
| A&P as % of sales | Media plus consumer promotion, ideally split above-the-line (brand building) vs below-the-line (discounting). A disclosed line in Indian P&Ls; buried in SG&A notes in 10-Ks. | India large-cap 8–13%, mid-cap 5–9%, launch-heavy years 13–16%. DM staples 6–12%, beauty 20%+. A sustained 150bps+ fall with flat volumes is a warning, not efficiency. | A&P is the sector's true maintenance capex but is expensed, so under-investment shows up as *margin expansion* and only bites 4–8 quarters later. Judging OPM without A&P intensity is the core error of the generic checklist. |
| Direct reach (outlets serviced directly) and total reach | Outlets serviced directly by the company's salesforce/distributors vs total outlets reached including wholesale. Disclosed in Indian annual reports and investor decks. Global equivalent: numeric and weighted distribution. | India: largest players ~3–3.5mn direct / ~9mn total; large mid-caps ~1.2–1.5mn direct. A scaling mid-cap should add 10–20% direct outlets a year. DM: weighted distribution >80% in core categories. | Distribution is the sector's genuine moat and the reason a well-funded new brand cannot simply outspend an incumbent. Growth = reach expansion × throughput per outlet, and reach-led growth is the more durable half. |
| Throughput per outlet and SKUs/categories per outlet | Revenue per serviced outlet; average number of the company's SKUs carried per store. | Category-dependent; throughput should grow mid-single-digit in real terms. Falling throughput while outlet count rises means reach expansion is cosmetic. | Adding outlets is cheap and easy to announce; making each outlet sell more is hard and is what converts into operating leverage. Also shows whether new launches genuinely ride the existing distribution asset. |
| Household penetration (%) and consumption frequency | Share of households buying the brand at least once in 12 months, plus frequency and quantity per occasion. From Kantar/Nielsen household panels; quoted in Indian concalls (the "penetration × consumption" framework). | Category-specific. Penetration under ~20% with a rising trend implies a long runway; above ~80% means growth must come from frequency, premiumisation or new categories. | Tells you where future growth must *physically* come from, which determines whether a rich multiple is defensible. A high-penetration brand priced for penetration-led growth is the most common FMCG valuation error. |
| Market share: value share vs volume share | Value and volume share in core categories as a trend, plus the share gap to the #2 player. Nielsen/Kantar retail audit. | Leadership at >1.5–2x the #2 is where pricing power and shelf economics live. Value share above volume share = genuine premium positioning; below = share bought with discounts. | FMCG categories are share-stable oligopolies, so small persistent share loss compounds into terminal decline. The value-vs-volume gap is the earliest signal of a brand quietly repositioning downmarket. |
| Innovation rate — % of revenue from products launched in last 3 years | Share of current revenue from NPD introduced in the trailing 24–36 months. | Best-in-class staples 5–12%; premium beauty and snacking 15–25%. Below 3–4% signals a portfolio ageing into commoditisation. | The sector's R&D productivity measure and the mechanism through which premiumisation and mix-led margin actually happen. Also separates real innovation from line extensions and grammage games. |
| Cash conversion cycle (inventory + receivable − payable days) | Net working capital in days, with distributor receivable days and trade payable days as the critical sub-components. | Best-in-class Indian FMCG runs **negative** CCC of −10 to −40 days (inventory 30–55d, debtors 8–20d, creditors 70–120d). Discretionary is positive: apparel 90–150d, jewellery 120–180d. | Negative working capital means growth self-funds and is the real engine behind the sector's high ROCE. Deterioration almost always precedes a growth disappointment: product is sitting in the trade, not with consumers. |
| Primary vs secondary sales gap, distributor ROI, channel inventory days | Primary = dispatches to distributors (what the P&L books). Secondary = distributor→retailer. Tertiary = retail offtake. Pair with the distributor's own pre-tax ROI and days of company stock in the channel. | Primary and secondary should track within ~200–300bps over a 2–3 quarter window. Indian distributor ROI norm 18–25% pre-tax; below ~15% distributors defect or under-invest. Channel inventory typically 15–30 days. | Loading the trade at quarter-end is the most common way FMCG results are flattered, and this is the only pair of metrics that catches it. It is also where quick-commerce disruption of general trade first becomes visible. |
| Channel mix: GT / MT / e-commerce / quick commerce / D2C | Revenue split by channel with the growth rate and margin profile of each. | India, typical urban-skewed brand: GT 55–70%, MT 10–15%, e-comm + quick commerce 10–20% and rising fast (30%+ for some premium urban portfolios). DM: grocery multiples plus 15–25% e-commerce. | Channel economics differ sharply — quick commerce demands higher listing and marketing spend and smaller packs while cannibalising the general-trade distributor whose ROI funds the moat. Growth mix determines whether margins are sustainable. |
| SSSG and store unit economics (discretionary/QSR/retail) | Growth from stores open >12 months, plus average daily sales per store, store-level EBITDA margin, sales per sq ft, and cash payback period. | Healthy SSSG 5–10%, and it should exceed menu/price inflation so footfall or transaction growth is positive. QSR store EBITDA 15–20% pre-Ind AS 116; store cash payback 2.5–4 years. | For store-based models consolidated revenue growth is dominated by new-store additions and says nothing about health. SSSG plus payback is the only real test of whether expansion creates or destroys value. |
| Cash conversion: OCF/EBITDA and FCF/PAT | Operating cash flow / EBITDA; free cash flow / reported net profit, measured over rolling three-year periods. | OCF/EBITDA above 85–90%; cumulative 3-year FCF/PAT above 80% for asset-light staples. Capex 2–4% of sales for staples, 5–8% for capacity-adding foods, higher during store rollouts. | Because brands and A&P are expensed, cash conversion is the honest test that reported profit is real. Persistent divergence points to trade loading, aggressive rebate accounting or capitalised soft costs. |
| Input-cost basket sensitivity and hedging position | The 3–5 commodities driving COGS (palm oil, crude-linked LAB/LLP/HDPE, milk solids, wheat, sugar, tea, coffee, copra, packaging) with GM sensitivity to a 10% move, plus extent and duration of forward cover. | Portfolio-specific, but the discipline is knowing the number: a 10% palm or crude move is typically 150–300bps of GM for soaps and detergents. Cover of one to two quarters is normal; much longer is a bet, not risk management. | Most FMCG margin "surprises" are commodity cycles misread as operating performance. Modelling the basket separates management execution from luck — in both directions. |
| Royalty/technical fee to parent and related-party intensity (India, MNC subsidiaries) | Royalty, technical and brand fees paid to an overseas parent as % of net sales; plus purchases from or sales to promoter-affiliated entities. | India norm 1–5% of net sales. Any step-up transfers economics to the parent with no operational change. | MNC subsidiaries are a large share of Indian FMCG market cap, and royalty is the main minority-shareholder risk — a direct, permanent haircut to EPS that no operating metric will reveal. |
| Pricing-power evidence: realisation per unit vs input index | Revenue per kg/litre/unit tracked against the company's own input cost index over 3–5 years. | Realisation should hold or rise in real terms through an input-deflation cycle; giving back the whole commodity gain in price means the brand has no pricing power. | The single most direct test of whether the "brand" is a brand or a label on a commodity. Distinguishes premiumisation from mix-shift accounting. |

Notes on sourcing: in India, UVG, direct reach, channel mix and A&P are usually found in the quarterly investor presentation and concall transcript rather than the financial statements — read the transcript. In the US, volume/mix, organic growth and segment margins are in the 10-K MD&A and 8-K earnings release; A&P is often only disclosed annually in the notes.

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## How to value companies in this sector

**Primary: forward P/E anchored to the stock's own long-run multiple, not to the market.** FMCG is asset-light, low-capex, usually net cash and highly cash-converting, so accounting earnings approximate distributable cash and P/E is genuinely informative — unlike in banks, insurers or capital-intensive sectors. Frame the multiple three ways: (a) versus the stock's own 5–10 year median and z-score, (b) versus the sector index, (c) growth-adjusted (PEG, or P/E against forward EPS CAGR). Indicatively, Nifty FMCG has traded at a 1.5–2.5x premium to the Nifty; Indian quality large-caps 40–70x, mid-caps 30–45x; DM staples 18–25x; premium beauty and spirits 25–35x. Treat a single-digit or low-teens P/E in this sector as a signal to investigate terminal decline or governance, not as value.

**Reverse DCF as the discipline on high multiples.** Because staples cash flow is stable and terminal-value-dominated, a forward DCF mostly launders your assumptions into a target price. Invert it: solve for the revenue growth, margin and fade profile the *current price* implies over 10–15 years, then test whether penetration, direct reach and category-size arithmetic can physically deliver it. ("This price requires the brand to reach 60% household penetration at a 4% real price increase — the category has never exceeded 35%.") This is the only rigorous way to underwrite a 60x staple. Explicitly fade ROIC toward WACC in the terminal period; assuming perpetual 50%+ ROIC is where most FMCG DCFs go wrong.

**EV/EBITDA where leverage or amortisation is material.** Use it for acquisitive and levered DM staples and for any Indian name with meaningful debt or acquired-brand amortisation. Indicative 10–16x for staples, 12–18x for premium categories. For asset-light Indian staples it collapses toward EV/EBIT and adds little over P/E — do not present both as independent evidence.

**EV/Sales for two specific jobs.** First, valuing high-growth, sub-scale or loss-making brands (D2C, new-age consumer, beauty) where margins have not normalised — pair it with an explicit path to a normalised margin. Second, benchmarking against M&A comparables: branded consumer M&A clears at roughly 2–4x sales / 15–25x EBITDA for mainstream staples and 4–6x sales for premium beauty and spirits. That sets a replacement/floor value for a listed brand portfolio and is often the most honest cross-check available.

**Sum-of-the-parts for multi-category conglomerates.** Where a group runs cigarettes, foods, hotels, paper and agri — or incubates an FMCG business inside a legacy cash cow — the consolidated P/E is meaningless because each segment merits a different multiple and a different terminal assumption. Value the parts, apply an explicit holding-company discount, and express demerger or value-unlock scenarios as SOTP deltas rather than as a re-rating hand-wave.

**Store-based discretionary (QSR, retail, footwear, jewellery).** Value on **pre-Ind AS 116 / pre-IFRS 16 EV/EBITDA** so history stays comparable, plus a store-economics build-up: mature-store EBITDA × store count, discounted for immature stores, cross-checked against EV per store and store cash payback. Never compare post-lease-standard EBITDA multiples to pre-FY19 history — the standard change alone creates an apparent multiple de-rating.

**Secondary cross-checks.** Dividend and total shareholder yield for mature staples (Indian MNC subsidiaries often pay out 70–100% of PAT; DM staples roughly 50–60% payout plus buybacks). FCF yield against the 10-year government bond — the cleanest bridge between a rich P/E and an actual expected return. EV per case, per hectolitre or per tonne for beverage and commodity-adjacent names.

**Explicitly do not use:** P/B or any book-value screen (internally-generated brands are off balance sheet; negative equity is common in DM). NAV or replacement cost of fixed assets. D/E thresholds. Interest coverage for the net-cash majority. Graham-style net-current-asset or earnings-power-value screens — they will reject the entire sector.

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## Peer set construction

A valid comparable in this sector shares **category gross-margin structure, channel model, and ownership/brand-royalty structure**. Market cap and "consumer" as a label are not sufficient.

Splits that must not be mixed:

- **By gross-margin architecture.** Personal/home care (50–70% GM), packaged foods and snacks (35–45%), dairy/edible oils/staples commodities (12–20%). A dairy business and a soap business have almost no ratio in common. Never rank them on OPM, GM or ROCE in the same table.
- **Staples vs discretionary.** Staples have low elasticity, short repurchase cycles and defensive earnings; discretionary (jewellery, apparel, footwear, QSR, durables) has income elasticity, fashion/season risk and a different beta. They de-rate at opposite points of the cycle.
- **Distribution-led vs store-led.** A company selling through 1mn outlets and one operating 1,500 owned stores have incompatible working capital, operating leverage and lease accounting. Keep them in separate tables.
- **Owned-brand vs licensed/franchised.** A master-franchisee QSR operator pays a royalty on sales and does not own the brand; its ceiling margin, terminal value and pricing autonomy differ fundamentally from a brand owner's. Franchisee operators compare to each other, not to the brand owner.
- **MNC subsidiary vs domestic promoter-owned.** MNC subsidiaries carry royalty leakage, a constrained ability to enter categories reserved for the parent, and typically very high payout; domestic promoter-owned names have reinvestment optionality and promoter-related-party risk. Valuation premia and governance checks differ.
- **Scale tiers.** A ₹500cr-revenue regional brand and a national player face different distributor economics, media efficiency and input procurement. Direct-reach comparisons across tiers are meaningless in absolute terms — compare growth rates in reach instead.
- **Pre- vs post-lease-standard series.** Within store-based peers, ensure all margin and return histories are on the same lease basis. If one peer restated and another did not, restate before comparing.
- **Legacy vs new-age/D2C.** D2C brands are valued on contribution margin, cohort retention and CAC payback, not on EBITDA. Do not include them in a staples multiple table without flagging the different basis.

Geography matters more than usual: an Indian staple growing 12% with 5% UVG is not comparable to a DM staple growing 4% with 1% volume, even in the identical category. Where you need a cross-border read, compare *decomposition quality* (volume share of growth, A&P intensity, share trend) rather than absolute multiples.

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## Sector-specific red flags

**Channel and revenue quality**

- Primary sales consistently outrunning secondary offtake, especially in March and September quarters — classic trade loading. Corroborate with rising debtor days, rising channel inventory days, and a Q1 "demand normalisation" that follows every strong Q4.
- Value growth positive while volume growth is negative for three or more consecutive quarters, dressed as "premiumisation". Usually price-led growth into a shrinking consumer base; it precedes share loss to regional and private-label players.
- Grammage reduction presented as volume-neutral. Indian price-point packs (₹5/10/20) hold the price and cut the grams, so whether "volume" is reported in tonnage or in units decides whether growth looks positive. Always check the definition in the fine print.
- Channel financing or bill discounting used to shorten reported receivable days while distributor credit risk stays with the company. Check contingent liabilities, recourse terms, and any jump in "other financial liabilities".
- Finished-goods inventory build ahead of an announced price increase — pulls margin into the current quarter and creates an air pocket later.

**Margin quality**

- A margin beat delivered by cutting A&P. A 150–300bps EBITDA improvement with A&P down and volumes flat is the lowest-quality beat in the sector: deferred cost, not earned margin. Repeated over three or four quarters it reliably precedes share loss.
- Gross margin expansion driven entirely by input-cost deflation but guided as structural. When palm, crude or milk turns, the margin evaporates and the stock de-rates twice — earnings cut plus quality re-rating.
- Reclassification of trade discounts, listing fees and slotting allowances between revenue deduction, A&P and "other expenses". This moves gross margin and EBITDA margin with no economic change, and is a favourite in years when a margin target has been guided.
- Rising other/treasury income as a share of PBT in a business that should be compounding operating profit — the cash pile doing the work the brands are not.
- Tax-rate flattery: earnings supported by expiring area-based exemptions (legacy Baddi/Sikkim/Guwahati units), concessional new-manufacturing rates, or one-off deferred-tax writebacks presented inside headline "PAT growth".

**Portfolio, M&A and structure**

- Serial acquisitions masking organic stagnation, combined with an "adjusted EBITDA" that permanently excludes restructuring, integration and impairment. If the exceptional item appears every year, it is an operating cost.
- Acquired brands and goodwill carried without impairment despite persistent underperformance. The large US packaged-food writedowns of the late 2010s are the reference case — the operating deterioration was visible in volume and share data years before the accounting caught up.
- Royalty or technical-fee step-ups by an MNC parent; promoter-owned entities embedded in the supply chain; or the brand itself owned outside the listed entity and licensed in. Each is a permanent, non-operational transfer of value away from minority shareholders.
- Understated concentration: a single brand or category contributing more than 50% of gross profit, or heavy dependence on one state or region, combined with category-specific regulatory exposure.

**Channel disruption and store models**

- E-commerce and quick-commerce growth celebrated while general-trade distributor ROI falls below ~15%, distributor attrition rises, or trade bodies publicly protest platform pricing. The company is trading its distribution moat for a quarter of growth.
- Store-based discretionary: SSSG delivered purely by menu or ticket-price hikes with negative footfall and transaction growth; weak-store closures flattering the SSSG base; and any margin narrative built on post-Ind AS 116 EBITDA that is never reconciled to a pre-lease basis.
- New-age D2C: revenue growth with negative contribution margin after customer acquisition cost, deteriorating repeat rates, or CAC rising faster than average order value. Disclosure of contribution margin 2/3, repeat-order share and cohort retention is the minimum bar — its absence is itself the red flag.

**Governance tells that historically precede FMCG accounting problems:** auditor or CFO churn; a sudden change in revenue-recognition or rebate policy; related-party loans; promoter share pledging (India — check the shareholding pattern and CARO/auditor qualifications); and management quietly ceasing to disclose a volume-growth number it previously gave. The last one is the highest-signal tell in the sector because it is cheap to do and rarely questioned.

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## Cycle and structural context

**Where in the cycle matters.** FMCG earnings are driven less by GDP than by the **input-cost cycle** and, in India, by **rural income** (monsoon, crop prices, MSP, rural wage growth, government transfers). The classic pattern: input deflation → gross margin expands → management guides "structural" margin → input inflation returns → margins compress and the stock de-rates on both earnings and quality. Locate the company on that cycle before extrapolating any margin trend. Volume growth typically responds to price cuts and grammage restoration with a 2–3 quarter lag.

**Defensive positioning cuts both ways.** Staples outperform in downturns because demand is inelastic, and underperform in recoveries as capital rotates to cyclicals. A "cheap vs history" staple in an early-cycle upswing may stay cheap for years. State the market regime when you comment on relative valuation.

**Structural threats to underwrite explicitly:**

- **Quick commerce and e-commerce** compressing the general-trade distributor's economics, shortening pack sizes, raising listing and platform-marketing costs, and reducing the shelf-space advantage that constitutes the incumbent's moat. This is the single biggest structural question for Indian FMCG right now.
- **Private label**, strengthened by modern trade and platform-owned brands, attacking mid-tier price points where brand equity is weakest.
- **D2C and performance-marketing entrants** who can reach a niche without a distribution network, fragmenting premium categories (beauty, supplements, snacking) even if they rarely scale to national relevance.
- **Health-and-wellness reformulation** pressure — sugar, salt, fat, palm oil, ultra-processed labelling — which raises COGS and can shrink whole sub-categories.
- **Premiumisation vs down-trading** — both narratives are live simultaneously in India as the consumer base bifurcates; check which end of the portfolio is actually growing rather than accepting the management framing.

**Regulation to check by category.** Tobacco taxation and GST/cess changes plus advertising and packaging restrictions. HFSS rules, front-of-pack labelling and health-star ratings. Food-safety norms (FSSAI in India; FDA/USDA in the US; EFSA in the EU). Plastic packaging extended producer responsibility (EPR) obligations and recycled-content mandates. Advertising standards on health and nutrition claims (ASCI in India; FTC in the US). For alcohol: state-level excise, route-to-market and pricing approval regimes, which in India differ enough state-by-state to be a material driver of realisation.

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## India vs global notes

**Reporting and units.** India reports under Ind AS in ₹ crore/lakh; results are quarterly with a limited-review audit and a mandatory investor presentation plus concall for most listed names. The **concall transcript is the primary source** for UVG, direct reach, channel mix, A&P intensity and distributor commentary — none of which are reliably in the financial statements. Global filers use the 10-K/10-Q (US GAAP, EDGAR) or IFRS annual reports; volume/mix and organic growth are in MD&A, A&P often only in the annual notes.

**Regulators and disclosure.** India: SEBI (LODR disclosure, related-party approval thresholds), MCA, FSSAI, ASCI, and CCI for competition. CARO reporting and the auditor's report on internal financial controls are genuinely useful for governance flags. Shareholding-pattern filings give promoter holding and **pledge** data — a red flag with no direct US analogue. US: SEC filings, plus FTC/FDA. IFRS filers vary in segment granularity; India's segment reporting is often coarser than a US 10-K's.

**Ownership structure.** A large share of Indian FMCG market cap sits in MNC subsidiaries, where the key minority-shareholder risks are royalty step-ups, category carve-outs reserved to the parent, and delisting/open-offer dynamics. Payout ratios of 70–100% of PAT are common because reinvestment is constrained. Domestic promoter-owned names carry the opposite profile — reinvestment optionality plus related-party and pledge risk. Global staples are typically widely held with buyback-heavy capital return and, in several cases, negative book equity.

**Structural market differences.** India's ~9–13mn outlet general-trade network with a multi-tier distributor/wholesaler structure has no DM equivalent; distribution reach is therefore a first-order moat metric in India and a second-order one abroad, where weighted distribution in a concentrated grocery-retailer set is the analogue and retailer bargaining power (slotting fees, private label) is the bigger issue. India's rural/urban split, price-point pack architecture and monsoon sensitivity have no DM counterpart. Growth rates differ by an order of magnitude — do not import DM valuation bands into India or vice versa.

**Tax.** India's concessional new-manufacturing rate and legacy area-based exemptions make effective tax rates non-comparable across peers and across time; normalise to the statutory rate when comparing operating quality. GST rate changes on specific categories move realisation and consumer price points directly and should be modelled as a revenue event, not a cost event.

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## Checklist

- [ ] Decompose reported growth into volume and price/mix for the last 8–12 quarters; if volume is not disclosed, treat that as a finding.
- [ ] Suppress ROCE/ROE/P/B/D/E/current-ratio conclusions, or restate them (brand-adjusted ROIC, net debt/EBITDA) before quoting.
- [ ] Chart A&P as % of sales alongside EBITDA margin; flag any margin gain funded by an A&P cut.
- [ ] Build the gross-margin bridge and attribute expansion to input deflation vs price/mix vs cost programme.
- [ ] Check the input-cost basket and estimate GM sensitivity to a 10% move in the top 3 commodities.
- [ ] Compare primary vs secondary sales trend, debtor days and channel inventory days for trade-loading evidence.
- [ ] Check distributor ROI commentary and distributor attrition; below ~15% pre-tax ROI is a moat-erosion signal (India).
- [ ] Track direct reach growth and throughput per outlet together — reach without throughput is cosmetic.
- [ ] Pull penetration and consumption-frequency data and ask where the next decade of growth physically comes from.
- [ ] Compare value share vs volume share trend and the gap to the #2 player.
- [ ] Verify the cash conversion cycle is negative (staples) and that any deterioration is explained.
- [ ] Test OCF/EBITDA and 3-year cumulative FCF/PAT for reported-profit honesty.
- [ ] For store-based names: restate the margin series to a pre-Ind AS 116 / pre-IFRS 16 basis before any comparison; check SSSG composition (footfall vs ticket) and store cash payback.
- [ ] For MNC subsidiaries: quantify royalty as % of net sales and check for step-ups or brand ownership outside the listed entity.
- [ ] Construct the peer set by category GM structure, channel model and ownership type — never by market cap alone.
- [ ] Value on forward P/E vs the stock's own 5–10 year median and z-score; run a reverse DCF with ROIC fading to WACC to test what the price implies.
- [ ] Cross-check against branded-consumer M&A multiples (EV/Sales, EV/EBITDA) and FCF yield vs the 10-year bond.
- [ ] Scan the concall/10-K for discontinued disclosures, rebate-policy changes, recurring "exceptional" items, and auditor/CFO churn.
- [ ] State the regulatory exposures specific to the categories in the portfolio (tobacco tax, HFSS/labelling, EPR, state excise).
- [ ] Restate every indicative range in this file as indicative — peer set and own history override it.
