Top FMCG, health, pharma stocks to buy: Unlock, improved economic activity to aid next rally

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Updated: Jul 06, 2020 2:04 PM

Indian share market benchmarks BSE Sensex and Nifty 50 gained nearly 5 per cent in June as compared to a 3 per cent rise in May

HUL, britannia industries, stocks to buy, FMCG, pharmaInvestors should be judicious in their stock selection from here on and should focus on companies with high-quality business franchises

Buoyed by a host of factors such as unlock process, improvement in economic activity, good rabi season, strong June auto sales numbers and over Rs 26,000 crore FPI inflows, Indian share market benchmarks BSE Sensex and Nifty 50 gained nearly 5 per cent in June as compared to a 3 per cent rise in May. Research and brokerage firm Angel Broking is bullish on select FMCG, health and pharma stocks with an upside up to 17 per cent. “We remain positive on the markets from a longer-term perspective. We feel that investors should be judicious in their stock selection from here on and should focus on companies with high-quality business franchises which have strong revenue visibility going forward,” it said in its recent report.

The brokerage firm advises investors to go with companies which have strong revenue with high-quality business. From FMCG space, the brokerage firm has chalked out Colgate Palmolive, Hindustan Unilever (HUL) and Britannia Industries. The top picks from the Health and Pharma sector are IPCA laboratories and Dr Reddy’s Laboratories.

1. Colgate-Palmolive (India): The manufacturer and seller of oral care products has increased its distribution 2.3x over the last 6-7 years and is continuously making efforts to deepen its penetration. A 17.2 per cent upside would be needed to take it to levels of Rs 1,620 apiece, as predicted by Angel Broking. As Colgate-Palmolive (CPIL) holds a leadership position in toothpaste and toothbrushes market, the brokerage firm believes CPIL should ultimately be able to see sharper market share gain in toothpaste segment on the back of higher ad-spend and re-launch of Colgate Strong Teeth.

2. Dr Reddy’s Laboratories: The pharma major has recently acquired the domestic business of Wockhardt pharma for Rs 800 crore in an all-cash deal. It will require a 16.6 per cent jump from the previous close in Dr Reddy’s Laboratories share price to touch the target price of Rs 4,570 apiece predicted by the brokerage firm. “Dr Reddy’s has a very strong product portfolio with 55%-65% of its revenue coming from its chronic which is a high growth segment and will be least impacted due to lockdown globally,” it said.

3. IPCA Laboratories: The pharma company’s more than half of the revenue comes from the domestic generic and API business. Angel Broking sees an upside of 14.3 per cent in IPCA Laboratories share price with a price target of Rs 1,900 apiece. “Current capacity utilization of plants which supply to Europe is at 20% which is expected to ramp up from current levels. We expect the European business to show 30-35% PAT growth,” it said.

4. Britannia Industries: The FMCG major, which deals in manufacturing of biscuits, bread, rusk, cakes and dairy products, is set to surpass its 52-week high of Rs 3,704. The brokerage firm has predicted a 10.7 per cent upside in Britannia Industries stock price, with a target of Rs 3,920 apiece. The brokerage firm highlighted that in the fourth quarter of FY20, Britannia Industries has outperformed other companies in FMCG space with YOY growth of 2.5% in revenue, 20bp in EBITDA and 27% in PAT (profit after tax).

5. Hindustan Unilever: Index heavyweight HUL has a strong balance sheet along with free cash flow and higher profitability. Angel Broking has pegged a price target of Rs 2,402 apiece, an upside of 10.7 per cent for HUL stock. “We expect HUL to report healthy bottom-line growth due to healthy volume growth on the back of a strong brand, wide distribution network,” it added in the report.

(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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