Value Trap or Trapped Value? What should investors do with Bajaj Consumer, Emami and Jyothy Labs?
In this article, let's talk about 3 stocks from the Consumer Staples and Discretionary sector – Bajaj Consumer, Emami and Jyothy Labs.
- Aug 17, 2023,
- Updated Aug 17, 2023 11:28 AM IST
Ever invested in a stock that looks like a great deal but isn't? Well, the concept of a value trap is very important for investors as it will help you better manage your portfolio risk. A value trap is a stock that seems undervalued, but isn’t. However, there are stocks which continue to trade at a considerable discount to their peers and offer great value (trapped value).
In this article, let's talk about 3 stocks from the Consumer Staples and Discretionary sector – Bajaj Consumer, Emami and Jyothy Labs. According to ICICI Securities, all three companies still appear as great value picks. These companies have gradually improved execution with a focus on distribution expansion, improving performance in new-age channels and diversifying their product portfolio.
The brokerage believes, with the consumer demand environment improving and deceleration in commodity inflation (which were headwinds over the last couple of years), the performance of the trio will likely improve and potentially drive higher valuations. "While Jyothi Labs remains our top pick (up 60 per cent in last 3 months), we expect Bajaj Consumer and Emami’s performance to improve in the near term and drive stock rerating," it said.
It believes that the improving consumer demand outlook and correction in key raw material prices are likely to drive growth and profitability of core segments/brands for the trio. It also expects normalisation of the trio’s gross margins with input cost correction providing them with more resources to invest in their brands.
The brokerage highlighted that the low salience of new-age channels (modern trade and e-commerce) in revenues was one of the concerns about these three players as the said channels are growing fast and increasing their salience in the overall FMCG category. However, all three have invested (channel-specific SKUs, digital-first launches, etc.) to improve their performance in these channels.
Also read: Hot stocks on August 17, 2023: Adani Power, Suzlon Energy, IRFC, Cipla and more
Talking about distribution expansion, ICICI Securities said that larger Consumer Staples peers have a limited scope for distribution expansion, but the three players under reference have significant scope for increasing penetration for their brands. All three companies have been focusing on increasing their direct and overall reach to improve outlet productivity and increase penetration of their brands. These players will likely realise the benefits of their investments in tandem with improving consumer demand outlook.
Check out the ratings and target prices below:
1) Jyothi labs
Wednesday's closing price: Rs 324.9
Target Price: Rs 380
Rating: BUY
2) Bajaj Consumer
Wednesday's closing price: Rs 241.7
Target Price: Rs 300
Rating: BUY
3) Emami
Wednesday's closing price: Rs 509
Target Price: Rs 520
Rating: ADD
Disclaimer: The stocks mentioned in the story are for information purposes only. Investors or market participants should consult their financial advisors before taking any position
Ever invested in a stock that looks like a great deal but isn't? Well, the concept of a value trap is very important for investors as it will help you better manage your portfolio risk. A value trap is a stock that seems undervalued, but isn’t. However, there are stocks which continue to trade at a considerable discount to their peers and offer great value (trapped value).
In this article, let's talk about 3 stocks from the Consumer Staples and Discretionary sector – Bajaj Consumer, Emami and Jyothy Labs. According to ICICI Securities, all three companies still appear as great value picks. These companies have gradually improved execution with a focus on distribution expansion, improving performance in new-age channels and diversifying their product portfolio.
The brokerage believes, with the consumer demand environment improving and deceleration in commodity inflation (which were headwinds over the last couple of years), the performance of the trio will likely improve and potentially drive higher valuations. "While Jyothi Labs remains our top pick (up 60 per cent in last 3 months), we expect Bajaj Consumer and Emami’s performance to improve in the near term and drive stock rerating," it said.
It believes that the improving consumer demand outlook and correction in key raw material prices are likely to drive growth and profitability of core segments/brands for the trio. It also expects normalisation of the trio’s gross margins with input cost correction providing them with more resources to invest in their brands.
The brokerage highlighted that the low salience of new-age channels (modern trade and e-commerce) in revenues was one of the concerns about these three players as the said channels are growing fast and increasing their salience in the overall FMCG category. However, all three have invested (channel-specific SKUs, digital-first launches, etc.) to improve their performance in these channels.
Also read: Hot stocks on August 17, 2023: Adani Power, Suzlon Energy, IRFC, Cipla and more
Talking about distribution expansion, ICICI Securities said that larger Consumer Staples peers have a limited scope for distribution expansion, but the three players under reference have significant scope for increasing penetration for their brands. All three companies have been focusing on increasing their direct and overall reach to improve outlet productivity and increase penetration of their brands. These players will likely realise the benefits of their investments in tandem with improving consumer demand outlook.
Check out the ratings and target prices below:
1) Jyothi labs
Wednesday's closing price: Rs 324.9
Target Price: Rs 380
Rating: BUY
2) Bajaj Consumer
Wednesday's closing price: Rs 241.7
Target Price: Rs 300
Rating: BUY
3) Emami
Wednesday's closing price: Rs 509
Target Price: Rs 520
Rating: ADD
Disclaimer: The stocks mentioned in the story are for information purposes only. Investors or market participants should consult their financial advisors before taking any position