Analysts positive on consumption sector, recommend these two stocks2 min read . Updated: 19 Nov 2020, 07:34 AM IST
- FMCG sector has seen strong rural growth largely led by good monsoon, higher government spends and huge new product launches
- Consumer durable and auto sectors have also seen increase in penetration levels
Analysts expect the consumption sector to continue its primary up trend and resume its up move after the recent higher base formation. "Midcap consumption stocks are expected to witness a catch up activity and are likely to outperform in the coming months," says Pankaj Pandey, Head– Research ICICI Direct Research Desk, ICICI Securities. The brokerage house recommends to buy Voltas and Oberoi Realty.
The Indian consumption sector is witnessing strong festive season sales propelled by pent up demand conditions in the last six months, which was impacted by Covid induced lockdown. Also, the FMCG sector has seen strong rural growth largely led by good monsoon, higher government spends and huge new product launches in immunity boosting, hygiene and packaged food space.
The consumer durable and auto sectors have also seen increase in penetration levels given demand for many durable goods (washing machines, microwave) was driven by self reliance for household works and increase in automobile demand increased due to apprehension of using public transport.
"We believe government stimulus for housing and real estate would drive growth for many related ancillary categories. We believe the strong festive sales would significantly improve revenue & earnings for the entire consumption space. We also believe benign raw material prices and higher operating leverage would result in an uptick in operating margins," says Pankaj Pandey.
Here are the two recommended consumption theme stocks by ICICI Securities:
CMP: ₹769, Target Price: ₹895, upside of 17%
Voltas is the market leader in the Indian air conditioners industry with market share of 26.8%. The company was founed in 1954. In addition to air conditioners, air coolers, water dispensers, water coolers, and commercial refrigeration products, Voltas offers engineering solutions for a wide spectrum of industries. "Despite being into seasonal product business and challenges in the project business from (due to Covid related lockdown) the company has maintained working capital efficiently. This is has helped company to remain debt free with strong RoCE and RoEs of consumer facing business," says Pankaj Pandey.
CMP: ₹452, Target Price: ₹516, upside of 14%
"Oberoi Realty’s (ORL) resilient Q2FY21 print was a pleasant surprise as the sales volumes decline of 6.6% YoY at 1.3 lakh sq ft was much better than the anticipated 30% decline. However, key highlight was the company’s intent to sell a minority stake in commercial assets (on a platform basis to unlock value as well as for growth capital)," says Pankaj Pandey.
"While we are impressed by residential recovery, launch response will be key ahead. The commercial assets stake deal, however, could be a key trigger, going ahead. Valuation pegging at higher end will drive the overall NAV upwards while sum raised would also drive business expansion plans," he adds
On the financials front, revenues declined 35.7% YoY to ₹316 crore in Q2FY21. Among major segments, revenue from projects, rent, hospitality has declined 39%, 8.6%, 79.6% YoY to ₹214.2 crore, ₹85.4 crore, ₹6.3 crore, respectively. EBITDA margins expanded ~15.7 percentage points (pp) YoY to 59% given the revenue mix and lower cost recognition in the residential segment. PAT was up 0.5% YoY to ₹138.7 crore.