Consumer stocks: Systematix stays cautious on ITC shares; prefers Marico, Bikaji Foods, Dodla Dairy

Systematix Institutional Equities has maintained a cautious view on ITC Ltd, citing subdued near-term cigarette volume demand and the impact of price lags on profitability. The brokerage expects the stock to remain range-bound in the near term and has assigned a 'Hold' rating.

Systematix has kept its target price for ITC unchanged at Rs 290, valuing the stock at 18 times its FY28E price-to-earnings (P/E) multiple, in line with its current one-year forward multiple. ITC is trading at around 18 times its FY28E earnings per share (EPS), according to the brokerage.

On cigarette volumes, Systematix said demand is currently down 10-15 per cent year-on-year (YoY) at both distributor and retailer levels. The decline is sharper in the Kings’ 84mm segment, where volumes are down 20-25 per cent, compared with a 7-8 per cent decline in the DSFT 64mm and Regular 69mm segments.

According to the brokerage, distributors attributed the demand weakness to the backlash from frequent and irregular price hikes and lower consumption frequency.

Systematix said cigarette demand had shown some stabilisation in April, with volumes recovering, but fresh price increases between May and August again affected the market and increased demand volatility.

Against this backdrop, the brokerage said it prefers select alternatives in the consumer staples segment, including Marico Ltd, Bikaji Foods International Ltd and Dodla Dairy Ltd. It has assigned 'Buy' ratings to the three stocks, with target prices of Rs 990, Rs 740 and Rs 1,295, respectively.

Systematix has also recommended 'Buy' calls on Dabur India, Godrej Consumer Products, Hindustan Foods and Patanjali Foods, with target prices of Rs 510, Rs 1,045, Rs 680 and Rs 580, respectively.

Among other consumer stocks, the brokerage has a 'Hold' rating on Britannia Industries, CCL Products, Colgate-Palmolive India, Hindustan Unilever, Nestle India, Prataap Snacks and Tata Consumer Products. Their respective target prices are Rs 6,035, Rs 1,290, Rs 2,080, Rs 2,205, Rs 1,620, Rs 1,045 and Rs 1,245.