Nestle, Varun Beverages, Jyothy Labs are top 3 picks of Axis Securities in the FMCG space post Q3

Nestle India Ltd , Varun Beverages, Jyothy Labs  are top 3 picks of Axis Securities in FMCG segment post the December quarter results.

The consumer companies saw impact of weak demand on their December quarter performance even though the falling commodity prices provided cushion to their operating performance.

“Most staple companies under our coverage have indicated a subdued demand environment, particularly in the mass end of the segment, as rural areas continue to face pressure”, said analysts at Axis Securities. Moreover, increased competitive intensity has further hampered volume growth. Anniversarization of price hikes and price cuts has resulted in muted topline growth as per analysts at Axis Securities.

The companies though saw benefits of the falling commodity prices on their operating profits, nevertheless higher competition is likely to keep advertising spends elevated and thereby the further margins expansion still remains to be watched for. 

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While the FMCG companies have reported muted performance and volume growth was impacted due to sluggish rural demand and increased competitive intensity. However, there is optimism for demand recovery in the coming quarters, which will be driven by easing inflation, increased government spending, and higher remittances as per analysts at Axis Securities.

Top 3 Picks of Axis Securities in the FMCG space include

Nestle India-  Nestle remains amongst top pick of Axis Securities with a target price of ₹2800.

Axis Securities expect Nestle to deliver healthy revenue, Ebitda and net profit growth of 13%, 18% and 18% CAGR (compound annual growth rate) over FY23-26. 

A positive outlook on Nestle due to its consistent and resilient performance, driven by several key factors such as rural penetration and market share gains through the RURBAN strategy, Nestle's continuous focus on innovation, with the launch of 125 products in the last seven years, driving growth. Axis also highlights Nestle's emphasis on premiumisation in core categories like the Maggi noodles range and introduction of differentiated products; Nestle's expansion into new categories of the future such as Purina Pet Care and Gerber's for toddler nutrition and Nestle's introduction of a Direct-to-Consumer (D2C) platform to enhance consumer engagement. 

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With  these strategies in place, Axis Securities believes Nestle is well-positioned for long-term growth.

Varun Beverages: Varun Beverages remains another key pick of Axis Securities with a target price of ₹1430

Varun Beverages has consistently outperformed its peers in recent quarters despite the volatile environment

Looking ahead, Axis Securities says that Varun Beverages is poised for strong performance driven by several factors such as normalization of operations and market share gains in newly-acquired territories post the COVID-19 disruptions. 

Varun Beverages continued emphasis on efficient go-to-market execution, exemplified by the successful commissioning of the Bihar facility and subsequent market share gains, is another key reason for Axis Securities remaining positive on Varun Beverages. Also Varun Beverages expansion of distribution reach to 3.5 million outlets by CY23, up from the current 3 million is another added positive

Jyothy Labs: Jyothy Labs remains another key pick of Axis Securities with a target price of ₹565.

Jyothy Labs is expected to deliver healthy Revenue, Ebitda, net profit growth of 13%, 25% and 25% CAGR (compound annual growth) over FY23-26 as per Axis Securities.  Jyothy Labs ROE (Return on Equity) is also anticipated to increase from 15% in FY23 to 21% in FY26.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions