4 consumer stocks look to gain up to 15% on strong rural, unlock-led demand in ‘new-normal’

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October 13, 2020 2:34 PM

Rural India contributes 35 per cent of total FMCG sales and has been holding strong. The outlook remains positive owing to the favourable monsoon.

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On the back of strong tailwinds of demand from rural India, unlocking process and industry consolidation, consumer space stocks seem to be in the positive territory. Research and brokerage firm Prabhudas Lilladher expects second-quarter performance for the current fiscal to show signs of recovery on the back of better consumer sentiment and improving the supply chain. It sees an increase of 3.3 per cent in sales and 1.1 per cent in PBT. It is observed that in the new normal set-up demand has been recovering. Rural India contributes 35 per cent of total FMCG sales and has been holding strong. The outlook remains positive owing to the favourable monsoon, a good harvest of rabi crops, higher MNREGA spends and MSPs.

The brokerage firm noted that the supply chain is mostly back on track and product availability issues have vanished. “Packaged food products and hygiene products witnessed robust demand since the beginning of the lockdown, however, demand has now peaked out,” analysts at Prabhudas Lilladher said. For the jewellery segment, it expects second-quarter sales to be better than first-quarter sales due to Unlock India, an increase in the number of operational stores and some karigars coming back.

Top stock picks:

Britannia Industries: The stock was trading firm with over 1 per cent gain in today’s volatile session. The brokerage firm believes the best quarter is behind and the impact of unlocking and pantry destocking has started softening growth rates. Its long term outlook remains intact led by innovations, affordable pricing, direct distribution reach, success in non- biscuits segments, cost efficiency programs and high growth in Hindi heartland. Prabhudas Lilladher retained a ‘buy’ rating with a 15-month target price of Rs 4,279, implying an upside of nearly 15 per cent from the previous close.

Hindustan Unilever: The brokerage firm retained HUL as a structural pick in the consumer space due to its strengths in key categories of Personal Hygiene, Haircare, laundry and growing foods portfolio. “Assuming 90 per cent payout over FY20-23, HUL is expected to end FY23 with a cash surplus of Rs 78 per share, making it ripe for buyback,” it said. The brokerage firm has retained ‘hold’ and advised to ‘accumulate’ on every decline. It pegged a target price of Rs 2,254, a 5% upside.

Kansai Nerolac Paints: Prabhudas Lilladher believes low base in Auto paints and gradual recovery in other industries led by consumer durables will result in positive momentum. Kansai has entered high growth segments like Adhesives, Construction chemicals and Wood coatings which will diversify sales and boost growth. It has maintained a buy rating to the stock with a 15-month target price of Rs 550, over 15 per cent potential upside.

Titan Company: The brokerage firm has upgraded rating from hold to accumulate. Its optimism on Titan has been elevated by faster than expected rebound in jewellery sales and improved competitive position post-Covid scenario. “We estimate 47% decline in FY21 EPS to Rs 9.3 but an increase to Rs 23.9 and Rs 29.4 in FY22 and FY23,” it said. The brokerage firm has revised the target price to Rs 1,322, from Rs 1,057 earlier and upgraded it to ‘Accumulate’.

(The stock recommendations in this story are by the respective research and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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