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ITC, HUL, Nestle, Britannia, Dabur, Marico, GCPL: What Jefferies said on these FMCG stocks?

ITC, HUL, Nestle, Britannia, Dabur, Marico, GCPL: What Jefferies said on these FMCG stocks?

Britannia’s growth momentum should continue in the near term and the softening in oil prices may help, said Jefferies while suggesting a target of Rs 5,000 on the stock.

2023 should see an improvement in volume growth, as rural demand bottoms out and base turns favourable, Jefferies said while expecting HUL's earnings growth to accelerate to over 15 per cent in FY24. 2023 should see an improvement in volume growth, as rural demand bottoms out and base turns favourable, Jefferies said while expecting HUL's earnings growth to accelerate to over 15 per cent in FY24.

Jefferies in its latest note said it sees a pick-up in growth, along with margin expansion for consumer staples in 2023 at a time when discretionary and retail may likely face growth moderation. It has Hindustan Unilever (HUL), Godrej Consumer Products (GCPL), and Britannia Industries as its top consumer staples picks.

After facing margin and growth pressure in FY23, Jefferies expects a pick-up across HUL's portfolio led by a rural recovery along with a margin expansion. The brokerage, which has a target of Rs 3,150 on HUL, said its valuations are in line with the 5-year average.

2023 should see an improvement in volume growth, as rural demand bottoms out and base turns favourable, Jefferies said while expecting HUL's earnings growth to accelerate to over 15 per cent in FY24.

For Britannia, Jefferies said growth momentum should continue in the near term, and softening in oil prices may help. This is even as benefits would be partially offset by increasing prices of milk and wheat, it said while suggesting a target of Rs 5,000 on the stock.

For GCPL, Jefferies said volatility in category growth remains an issue but the brokerage is expecting interesting launches in 2023  along with margin stabilisation. Jefferies finds GCPL worth Rs 1,090.

"The stock has underperformed peers in 2022 and valuations are at a discount to peers at 41 times FY24 EPS. While H1FY23 saw an EPS decline, we expect a pick-up starting H2 and strong growth in FY24, as margins recover. GCPL is one of our top picks in staples for 2023," Jefferies said.

Jefferies also has 'Buy' ratings on ITC and Dabur India while it has a 'Hold' rating on Nestle India.

On ITC, Jefferies said the cigarette business will continue to recover although the Union Budget on February 1 holds the key. Jefferies, which has a target of Rs 415 on ITC, said the outlook on the margin of FMCG business has improved and that valuation for ITC remains reasonable.

"At a 3-4 per cent dividend yield and 23 times 1-year forward EPS, the stock offers good value along with high earning visibility; a major hike in cigarette taxation would be a key risk," it said.

Jefferies base case suggests 5 per cent YoY tax hike in the Budget.

On Nestle India, Jefferies said the company has shown resilience and growth may continue but it faces the risk of urban consumption softening. Valuation leaves no scope for error either, it said while suggesting a target of Rs 18,300 on the stock. In the case of Marico, Jefferies said product price cuts may keep revenue growth tepid - pick-up in volume is key. Jefferies finds the stock worth Rs 560.

Jefferies also talked about stocks such as Tata Consumer, Colgate-Palmolive, and Emami.

On Tata Consumer, it said the Tata Group company is a strong play on the LT foods opportunity but there is a near-term risk of inflationary pressure in salt, weak volume in tea, and volatility in international business.

A change in strategy is needed from a medium-term standpoint, it said on Colgate-Palmolive. Out-of-box thinking may be needed for Emami to drive sustainable growth. Emami valuations are inexpensive but growth pick-up is a must, Jefferies said. 

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Published on: Jan 05, 2023, 7:41 AM IST
Posted by: Mehak Agarwal, Jan 05, 2023, 7:36 AM IST