Time to restock? Here's why Motilal Oswal is bullish on HUL, GCPL, Dabur and Titan shares

Dalal Street is all set to kick start the earnings season for the quarter ended March 2024. According to Motilal Oswal, the consumer staples companies have struggled to maintain volume growth momentum during the last two years, largely due to external challenges.

However, earnings delivery of the staples companies was not as weak as it was on the volume front. Despite such healthy earnings, the majority of staples stocks have underperformed because the market was more focused on volume-led earnings growth.

The brokerage house continues to believe that discretionary categories/companies have better growth potential driven by factors such as market penetration, deeper distribution reach, GDP multiplier, higher wallet share, etc. However, it sees growth normalization (settling of pent-up demand) along with the risk of sustaining such high margins amid intensifying competition for many discretionary companies.

"We recommend increasing portfolio weights for staples companies. We prefer HUL,

GCPL, and Dabur in the staples category. In the discretionary category, we continue to favor the jewelry space and prefer Titan," Motilal Oswal said in its recent report.

HUL: All eyes on rural recovery

Motilal Oswal has maintained its 'BUY' rating on HUL with a target price of Rs 2,900 based on 55x FY26E EPS. With the anticipation of gradual improvements in macros, it expects HUL will be able to capitalize and deliver better volume growth in FY25-26.

The brokerage firm noted that Hindustan Unilever’s (HUL) recent underperformance has been largely led by external factors. Except for the recent challenge from local players, the company has consistently gained market share for the majority of its portfolio. However, it believes such competitive pressure from local players is temporary. 

GCPL: Growth and margin remain key catalysts

It has reiterated its 'BUY' rating on Godrej Consumer Products (GSPL) with a target price of Rs 1,500. GCPL internal initiatives are expected to help the company sustain its growth outperformance, Motilal Oswal said.

"The inclusion of incense sticks and the company’s entry into liquid detergent will not only expand GCPL’s target market but also highlight its backend competence and growth-oriented approach. Under Sudhir Sitapati's leadership, there has been a noticeable shift in the company’s strategy for the last 12-18 months," it added.

"With the domestic business already outperforming in volume growth, improvements in demand should boost GCPL’s growth trajectory. We believe earnings acceleration will keep the stock in flavor," it said.

Dabur: Building blocks on core strengths

Motilal Oswal has also reiterated its 'BUY' rating with a target price of Rs 650, valuing the company at 48x FY26E P/E. It noted that the stock has underperformed during the last two years, and is currently trading at 40x FY26E EPS, at a 15-20% discount to its historical three/fiveyear averages.

"Dabur's extensive focus on scaling up its Ayurvedic portfolio, expanding its distribution network, and transitioning towards chemist channels will drive future growth. However, most of its initiatives were not yielding results as the demand environment was subdued. Nevertheless, with an improving volume trajectory and no impact of price cuts on revenue (unlike peers), we anticipate that its revenue growth outperformance will continue in the near term," it said.

Titan: A long runway of growth

Motilal Oswal has reiterated its 'BUY' rating on this Tata Group company with a target price of Rs 4,300 based on 65x FY26 EPS.

It said that Titan Company (Titan), with its superior competitive positioning (in sourcing, studded ratio, youth-centric focus, and reinvestment strategy), has continued to outperform other branded players. The brand recall and business moat are not easily replicable; therefore, Tanishq’s competitive edge will remain strong in the category.

"It will be critical to monitor the margin outlook amid intensifying competition. The non-jewelry business is also scaling up well and will contribute to growth in the medium term," it added.