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Business News/ Markets / Stock Markets/  Stocks to buy: HUL, Godrej Consumer, Emami among five FMCG stock picks by Anand Rathi
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Stocks to buy: HUL, Godrej Consumer, Emami among five FMCG stock picks by Anand Rathi

Stocks to buy: Anand Rathi has ‘Buy’ ratings on Hindustan Unilever, Godrej Consumer Products among large-caps and Zydus Wellness and Emami among midcap FMCG stocks.

Stocks to buy: United Breweries is its sole preferred pick in consumer discretionary and has upgraded the stock to a ‘Buy’.Premium
Stocks to buy: United Breweries is its sole preferred pick in consumer discretionary and has upgraded the stock to a ‘Buy’.

FMCG companies witnessed a sharp drop in revenue growth during the quarter ended December 2023 while their gross margins expanded on the back of falling input costs.

The Q3 revenue growth of fast-moving consumer goods (FMCG) companies was just 2.1%, decelerating sharply from around 6% in H1 and around 13% in FY23. The management commentaries, though, for most FMCG companies were optimistic about a better revenue trajectory aided by rural demand recovery. 

Brokerage firm Anand Rathi estimates a 13% earnings CAGR over FY24-26 for its FMCG coverage universe, aided by gross-margin gains and recovering demand. It prefers reasonably valued stocks with growth assurance.

The brokerage firm has ‘Buy’ ratings on Hindustan Unilever, Godrej Consumer Products among large-caps and Zydus Wellness and Emami among midcap FMCG stocks. United Breweries is its sole preferred pick in consumer discretionary and has upgraded the stock to a ‘Buy’.

Here are the top FMCG stocks to buy:

Hindustan Unilever | Buy | TP: 3,100

With a subdued FY24 (favourable base) and early signs of demand revival in rural markets and in the non-food category, Hindustan Unilever should benefit in FY25. However, gross margin gains would be limited to 60 bps in FY25 on favourable input prices. Volume recovery and modest margin expansion should help to steady earnings growth of 13% in FY25, though intense competition (especially from small players) remains a concern, Anand Rathi said.

The valuation at 48x on FY25e versus the 10-year average of 51x is attractive, it added. The brokerage has a ‘Buy’ rating on the stock with a target price of 3,100 per share.

Also Read: Stocks to buy: Navin Fluorine, Neogen, Galaxy Surfactants among top picks in chemical sector by HDFC Securities

Godrej Consumer Products | Buy | TP: 1,350

Godrej Consumer Products saw consistently better Q3 volume growth in domestic markets. This, and favourable input costs aided its strong gross-margin gains, a part of which was invested in higher brand spends. 

The brokerage expects the company’s core categories’ market share to rise, aided by innovations. It believes the valuation has risen recently but is likely to stay high due to better earnings assurance under Sitapathy’s leadership. 

It has a ‘Buy’ call on Godrej Consumer Products with a target of 1,350 per share.

Emami | Buy | TP: 616

Emami had a mixed Q3 with below-expectation volume recovery, mainly due to adverse weather denting its seasonal portfolio. Despite this, gross margin gains were healthy, aided by the fall in key input prices, though offset by higher brand spends. 

“Even though new companies are entering its core cooling-oil category, management said it hasn’t seen any material share loss. The valuation is attractive at just 24x on a 1-year forward basis, adding lustre to the company’s steady earnings outlook," Anand Rathi said.

It has a ‘Buy’ rating on the stock with a TP of 616 per share.

Also Read: Stocks to buy: Birla Corp, Saregama India, Savita Oil among 5 fundamental stock picks by HDFC Securities

United Breweries | Buy | TP: 2,150

United Breweries reported a steady 8% volume growth. Also, the gross margin and EBITDA margin rose, bolstered by the drop in prices of barley. The brokerage believes concerns regarding volume decline, market-share loss and weaker margins are largely behind and the company should see steady volume/earnings recovery ahead. 

The stock trades at an attractive valuation of 65x versus the 10-year average of 89x. It has upgraded the stock to ‘Buy’, with a target price of 2,150 per share. 

Zydus Wellness | Buy | TP: 1,910

After a few muted quarters, hurt by adverse summers and input cost rises, we expect a gradual recovery with margin tailwinds from the fall in input costs and price hikes. Intense competition in health-food drinks and adverse news flow/the trademark issue had a bearing on Complan and the artificial sweetener category, the brokerage firm said.

The valuation, though, at 24x looks reasonable versus the past average of 33.5x, it added. It has a ‘Buy’ call on the stock with a target of 1,910 per share.

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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.

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Published: 29 Feb 2024, 12:19 PM IST
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