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Geosphere's Sanger on why investors should resist paying higher multiples for FMCG stocks

Investors should avoid paying premium valuation multiples for stocks of FMCG companies, as the consumption trends see during the lockdown phase are unlikely to sustain, according to Arvind Sanger of Geosphere Capital Management.
"You are going to have some of the retailers who are in the grocery type of business or some of the products that are more home consumption products where you could see a significant boost because one - people were not going out, they were eating at home and a lot of comfort foods of reliable brand names did well in that environment," Sanger told CNBC-TV18.
"Part of it could be longer-term but I am not so sure, I think the consumption that we are seeing during these lockdown times are not necessarily new consumption trends," he said.
Last week Britannia reported a strong set of earnings for the June quarter, with net profit more than doubling year-on-year. The company's Managing Director Varun Berry in an interview to CNBC-TV18 that the high volume growth and margin expansion would be hard to sustain. He also said that his company had benefitted from the absence of street food during the lockdown.
Sanger said online retailers were more likely to see gains that could sustain when the economy was back to normal.
"I would distinguish between a Britannia consumption and consumption of online services. I think the online services - there is going to be a change in behaviour that will be long-lasting, that will not go back," he said.
"I will be chasing the ones where there could be behavioural changes that may be more longer-lasting once we come out of COVID," Sanger said.
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