ITC, Britannia, Emami - BNP Paribas suggests these 3 FMCG stocks to buy
BNP Paribas' top stock picks are ITC, Britannia and Emami in its FMCG coverage
PremiumBrokerage BNP Paribas believes that Indian FMCG companies are poised for a recovery in volumes and margins starting 2HFY23. The trend of price hikes continuing, albeit at a slower pace, as companies took calibrated price increases to offset the impact of inflation seen in earlier quarters and BNP believes this puts companies in a margin sweet spot starting 2HFY23 as the lag effect of price hikes continues, while raw material cost softens.
BNP Paribas' top stock picks are ITC, Britannia and Emami in its FMCG coverage. “Our price tracker indicates further price hikes in the biscuit category and a moderation in raw material costs, which should augur well for Britannia’s margin recovery. We continue to find ITC’s valuation attractive relative to the sector and its historical valuation. Emami is well positioned to benefit from a rural recovery and trades at an attractive valuation," the note stated.
BNP Paribas' top FMCG stock picks -
Its buy rating on Britannia shares come with a target price of ₹4,330. Though, downside risks, as per the brokerage are raw material cost inflation resulting in higher than expected margin pressure, deterioration in cash distribution, i.e. rise in group ICDs, or rise in % of CFO invested in ICDs and other financial investments.
Meanwhile it has a Buy tag on Emami with target price of ₹600. “Risks to our thesis: Downside risk: Poor consumer sentiment may weigh demand since more than 50% of the portfolio is discretionary in nature," it said.
BNP Paribas has Buy tag on ITC shares with target price of ₹360 with downside risks being steep increase in taxation on cigarettes, higher than expected increase in raw material costs.
"After a spike in quantum of price hikes in 1QFY23, the trend has moderated in line with softening in cost of key commodities. Detergents witnessed the highest number of price hikes, with all major companies increasing prices. However, sequential price hike was in single digit," it highlighted.
Companies have taken significant cumulative price hikes in the last one year that have dented volume growth of the FMCG industry. However, if prices of key commodities continue to moderate, we may see companies passing on the benefits to consumers to boost volume growth, as already seen in the case of Parachute and edible oils. This may result in volume-led sales growth with a margin recovery in the medium term, believes BNP.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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