The consumer staple companies witnessed muted revenue growth in the quarter ended December 2023 as weak consumer sentiments cut mass demand, mild winter, sticky food inflation, increased competitive intensity, and uneven economic recovery.
Centrum Broking, in a report, said that the FMCG sector valuations appear to be rich, with an improving outlook.
Among FMCG stocks to buy, it prefers ITC, Emami, Asian Paints, and Britannia Industries and expects bounce back in rural areas to influence performance for Dabur India and Bajaj Consumer Care positively. It has a ‘Buy’ rating on these FMCG stocks along with Godfrey Phillips India and VST Industries.
Here are FMCG stocks to buy after Q3 results:
Dabur | Buy | TP: ₹613
Dabur’s Q3FY24 print was in-line with our estimates. Management guided for operating margins to remain in ~19-20% band and savings from lower inflation would be invested back in ad-spends.
Centrum Broking holds its earnings and retains a ‘Buy’ rating on the stock with a DCF-based target price of ₹613 per share, implying average 42.2x FY25E/FY26E EPS.
ITC | Buy | TP: ₹556
ITC’s Q3FY24 print was below Centrum Broking’s estimates with revenue and PAT rising by 1.4% and 10.9% while EBITDA down by 3.7%.
The brokerage had argued that with strong operating leverage and improved product-mix, FMCG segment to deliver a 12.9% EBITDA margin (Mar’24).
With lower 9MFY24 performance, it tweaked earnings and retained a ‘Buy’ rating with a revised DCF-based target price of ₹556 per share, implying 29.4 avg. FY25E/FY26E EPS.
Britannia Industries | Buy | TP: ₹5,854
Britannia Industries Q3FY24 print was below Centrum Broking’s estimates with consolidated revenue, EBITDA and net profit growing 1.4%, 0.4% and 0.3% YoY. The biscuit maker’s management said it will execute pricing action to remain competitive and reinvest accrued benefits in ad-spends and promotions.
With stable EBITDA margin (19%) Britannia Industries aims to drive double digit volume growth and increase market share in focus states.
The brokerage retained a ‘Buy’ call on the stock with a revised DCF-based target price of ₹5,854 per share.
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Emami | Buy | TP: ₹610
Emami’s Q3FY24 print was in-line with the brokerage’s estimates. Domestic revenues remained flat with 0.9% decline in volume, yet international business saw 11.0% growth (CC). Its management alluded slower growth to 9% decline in winter care portfolio, though non-winter portfolio grew 5%, delayed winter, and continued weakness in rural.
Centrum Broking retained a ‘Buy’ rating on the stock with a revised target price of ₹610 per share.
Bajaj Consumer Care | Buy | TP: ₹260
Bajaj Consumer’s Q3FY24 print was in-line with the brokerage estimates. With flat value, ADHO volumes grew 8.0%. Management said it saw demand uptick around the festive season, though the demand trend post Diwali remained sluggish.
With cautiously optimistic outlook, Centrum Broking tweaks earnings and retains a ‘Buy’ call with a revised target price of ₹260 per share, implying 16.5x FY25/FY26E EPS.
Godfrey Phillips India | Buy | TP: ₹2,656
Godfrey Phillips reported Q3FY24 revenues ahead of estimates, though margins declined sharply. The company has a strong focus on RSFT segment, yet its focus on improving throughput in TFS (150 stores) to reflect in lowering losses.
With strong performance in 9MFY24, the brokerage tweaked its earnings and retained a ‘Buy’ rating, with a revised target of ₹2,656 per share.
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VST Industries | Buy | TP: ₹3,943
VST Industries Q3FY24 print was weakest; revenues grew modestly at 4.8% to ₹3.45 billion while EBITDA and PAT declined by 24.1% and 32.0% led by higher sales from leaf tobacco exports. Despite weak base Q3 cigarette volumes cut by ~4% YoY due to persistent weakness in rural demand and weaker RSFT portfolio, yet leaf tobacco exports grew 30%, the brokerage noted.
It cut FY24E and FY25E earnings estimates and retained a ‘Buy’ call with a revised TP of ₹3,943 per share, implying 16.3x avg. FY25E/FY26E EPS.
Asian Paints | Buy | TP: ₹3,820
Asian Paints’ Q3FY24 results were mixed. Despite the challenging demand environment, domestic decorative volumes grew healthy at 12%. Management alluded the volume resurgence to 80% mix led by economy emulsion, strong recovery in T3/T4 cities similar growth matching to urban centers, robust growth in projects/institutional business, distribution reach 162k, and solid growth in waterproofing segment.
The paint maker retained double digit volume growth aspirations (1.5x GDP growth) and balanced EBITDA margins, yet maintained a cautious view on volatile crude oil prices.
Centrum Broking tweaked earnings estimates and retained a ‘Buy’ call, with a revised DCF-based TP of ₹3,820 per share.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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