Unilever Indonesia’s de-rating highlights risks to Indian peers

Fast-moving consumer goods (FMCG) stocks in Indonesia have seen a sharp de-rating in the past five years amid sluggish growth. Unilever

Indonesia, the biggest consumer staples firm there, currently trades at 20 times (x) its one-year forward price-to-earnings (P/E), compared with the 10-year average of 40x.

While domestic FMCG companies don’t face similar challenges, the sharp de-rating underscores the risk FMCG stocks face if growth expectations are not met.

“Indonesian staples stocks, which in the past have traded at similar valuations as Indian staples, are now trading at a large discount. Unilever Indonesia traded at a 25 per cent premium to Hindustan Unilever over 2011-16, which has now moved to a 66 per cent discount. This has raised investor concerns over risks to the rich valuations for Indian staples,” Credit Suisse has said in a note.

“The de-rating of Indonesia staples shows the importance of a threshold revenue growth of double digits to sustain rich valuations,” it added.