A tale of two FMCG shares: One you should buy, and one you should hold after Budget; check target prices

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Updated: Feb 07, 2020 5:40 PM

HUL stands to gain from a rise in rural incomes, given its reliance on sales within the country. Further, the government has also proposed to do away with Dividend Distribution Tax (DDT) from the company level which is likely to benefit the MNC share.

HUL, ITCThe government has proposed to increase the National Calamity Contingent Duty (NCCD) on cigarettes and other tobacco products

Union Budget 2020 has brought out a lot of winners in the share market, with FMCG major HUL among the FMCG shares that stand to gain from Finance Minister Nirmala Sitharaman’s fiscal proposals. Brokerage and research firm Sharekhan, in its updated stocks, impact analysis for Financial Express Online, has recommended investors to ‘buy’ Hindustan Unilever Ltd’s shares, with a target price of Rs 2,185, expected to hit in 12 months. HUL shares today ended 0.18 per cent higher at Rs 2,161 apiece on BSE.

“With the government focus on doubling farm income by 2022, we should expect more initiatives to come up for rural development in the near term. This will help in improving rural penetration for consumer demand,” Sharekhan said in its stock analysis for Financial Express Online. The government has proposed to double farmers’ income by 2022. It has also proposed to raise the target for disbursing agriculture credit to Rs 15 lakh crore for 2020-21 fiscal from the current target of Rs 13.5 lakh crore.

Check Sharekhan’s full analysis on these stocks here.

HUL stands to gain from a rise in rural incomes, given its reliance on sales within the country. “HUL derives close to 50% of its total revenues from the domestic market,” Sharekhan said. Further, the government has also proposed to do away with Dividend Distribution Tax (DDT) from the company level which is likely to benefit the MNC share. “In order to increase the attractiveness of the Indian Equity Market and to provide relief to a large class of investors, I propose to remove the DDT and adopt the classical system of dividend taxation under which the companies would not be required to pay DDT,” FM Sitharaman said in her Budget speech.

Sharekhan has also given a ‘hold’ rating on another FMCG and tobacco major ITC Ltd, with a target price of Rs 242 for 12 months. The government has proposed to increase the National Calamity Contingent Duty (NCCD) on cigarettes and other tobacco products. The NCCD would be increased on cigarettes, ranging from Rs 200-735 per thousand, depending upon the length of cigarette and on filter/non-filter basis. “The weight average tax rate on cigarettes for ITC stands at 9%. The price hike in cigarette portfolio will affect the volumes in the near term. Hence, in view of near term concerns we have reduced our rating on the stock to Hold,” Sharekhan said.

ITC shares ended flat at Rs 213.50 apiece on BSE in Friday’s trade.

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