Why this FMCG stock is Axis Securities’ top pick of the week

FMCG companies have been battling with a rural slowdown for the last few quarters, impacting their overall volume growth. However, demand is likely to recover in coming quarters as the inflation comes down due to the RBI intervention, good monsoon, increase farm income - MSP, higher crop realization, increase in remittances, and strong festive and wedding season, highlighted domestic brokerage and research firm Axis Securities.

“In Q2FY23, HUL highlighted that it expects gross margins to inch up marginally on a sequential basis as most of the key raw material prices are down. On a cautionary note, however, sharp rupee depreciation will have some impact, said while expecting margins to improve after a prolonged period. In Q2FY23, the premium portfolio (product above ₹120) grew 2x of the category growth with larger growth being seen in the detergent segment where HUL continues to drive the premiumisation agenda,” the note stated.

Despite short-term challenges, HUL's long-term growth prospects remain strong as the management focuses on driving, a broad-based portfolio and straddling across the price-value matrix driving premiumisation, cost savings initiatives, market development and market share gains across the portfolio, strong execution capabilities, which displays its strength in diverse product portfolio and strong financial prowess in this volatile and the challenging environment, it added.

Sharing as its top stock pick for the week, the brokerage house has recommended a BUY rating on the FMCG stock with a near term target price of ₹2,780 per share.

HUL is India’s largest fast-moving consumer goods company with well-renowned household products comprising 44 brands spanning 14 distinct categories such as soaps, detergents, shampoos, skincare, toothpaste, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, health food drinks, and water purifiers. The portfolio includes leading household brands such as Lux, Lifebuoy, Surf excel, Rin, Wheel, Glow & Lovely, Pond’s, Vaseline, Lakmé, Dove, ClinicPlus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, KwalityWall’, Horlicks, and Pureit. It has a total reach of around 9 million outlets across India’s cities, towns, and villages.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.