During the quarter ended December 2023, fast-moving consumer goods (FMCG) companies experienced a notable slowdown in revenue growth to just 2.1%, a sharp decline from approximately 6% in the first half of the year and around 13% in the previous fiscal year (FY23). Despite this, management commentaries from most FMCG companies expressed optimism about an anticipated improvement in revenue trajectory, primarily driven by the recovery in rural demand.
Anand Rathi, a brokerage firm, projects a 13% earnings Compound Annual Growth Rate (CAGR) over FY24-26 for its FMCG coverage universe. This growth is expected to be supported by gains in gross margins and a rebound in demand. The firm favors reasonably valued stocks that offer growth assurance.
Hindustan Unilever, Godrej Consumer Products, Zydus Wellness, and Emami are among the FMCG stocks with a ‘Buy’ rating from Anand Rathi. United Breweries, representing consumer discretionary, has also been upgraded to a ‘Buy’. Here’s a summary of the brokerage’s recommendations and target prices for these stocks:
Hindustan Unilever (HUL) – Buy | Target Price: ₹3,100
HUL is expected to benefit from a better revenue trajectory in FY25, supported by rural market recovery and a rebound in non-food categories. The company’s earnings growth is anticipated to remain steady at 13% in FY25, despite intense competition. HUL’s attractive valuation at 48x on FY25 estimates, compared to the 10-year average of 51x, adds to its investment appeal.
Godrej Consumer Products – Buy | Target Price: ₹1,350
Godrej Consumer Products witnessed robust volume growth in domestic markets during Q3, supported by favorable input costs. The company’s focus on innovation is expected to enhance its market share in core categories. Despite recent valuation upticks, sustained high valuations are predicted due to better earnings outlook under Sitapathy’s leadership.
Emami – Buy | Target Price: ₹616
Emami experienced mixed results in Q3, with volume recovery below expectations due to adverse weather. However, healthy gross margin gains were observed, driven by lower input costs. The stock’s attractive valuation at just 24x on a 1-year forward basis, combined with a steady earnings outlook, adds to its appeal.
United Breweries – Buy | Target Price: ₹2,150
United Breweries reported steady volume growth of 8% in Q3, along with improved gross and EBITDA margins due to lower barley prices. The company is anticipated to witness steady volume and earnings recovery ahead, with concerns regarding volume decline and weaker margins largely addressed. The stock’s current valuation at 65x versus the 10-year average of 89x is considered attractive.
Zydus Wellness – Buy | Target Price: ₹1,910
After facing challenges from adverse summers and input cost rises, Zydus Wellness is expected to see a gradual recovery, supported by margin tailwinds from lower input costs and price hikes. Despite intense competition and past trademark issues, the stock’s valuation at 24x appears reasonable compared to the historical average of 33.5x.
Disclaimer: The views and recommendations mentioned above are provided by individual analysts or broking companies and do not represent those of legalparivar.com. Investors are advised to consult certified experts before making any investment decisions.
