2 Bluechip FMCG stocks may hit record highs after Q2 results: Buy?

ITC Limited

Research analysts at ICICI Direct Research said in a note that “ITC continued its growth momentum across all categories in Q2FY23. The cigarette category has been stabilized by stable taxation, increasing market share with aggressive business promotions and new launches in the last one year. Benefited from premium brands. The FMCG business is seeing strong growth especially in the low penetration food category and strong traction from academia and stagnant business (fully functional education institutions drive growth after two years) Further, the paperboard business has not only benefited from the price hike, but is also growing across all user industries.The hotel business has benefited from the demand situation after two years of covid impact. Given that the third quarter is the peak quarter for travel, accommodation in hotels and ARR are likely to remain strong in the near future. We believe that with stable taxation and moderation in raw material prices, ITC will continue to expand its core strength of cigarettes and FMCG. business will continue to grow.We are looking forward to the long-term We remain positive on ITC from a growth perspective. We maintain our BUY recommendation with the revised target price on the stock 405/share (earlier 360/share).”

He further added that “ITC’s share price gave a return of 30% in the last five years (from .) From 269 in October 2017 to 350 in October 2022) FMCG is underperforming the index. We increase our cigarette volume growth estimate for FY23E from 10% to 13%. We also incorporate higher hotel occupancy and ARR keeping in mind the strong H1FY23 performance and future outlook. We maintain our BUY recommendation.”

Stable taxation on cigarettes is expected to maintain the current volume run rate. The company has been gaining market share in cigarettes through new premium products and business promotions since last one year, FMCG business has been growing at a steady pace with continuous improvement in margins over the last five years. The large opportunity size of the existing food items (flour, biscuits, juice, noodles, snacks, chocolate and dairy) portfolio will help the business to grow at a faster pace than other FMCG companies and hotel business crossed 70% in occupancy levels and ARR are above pre-pandemic levels. Research analysts at ICICI Direct Research said it will continue to grow bullish in the short term factoring in fast-growing demand, the top 3 key triggers for ITC’s future price performance.

Research analysts at KR Choksi Research said, “ITC is witnessing broad-based growth across segments, markets and channels. Expected pick-up in consumption in the coming quarters due to moderation in inflation, normal monsoon and proactive measures by the government and RBI. Good omen for ITC. We like ITC for competitive advantage in terms of sourcing, gaining market share from illicit trade in cigarette business, increasing penetration of FMCG business, innovative launches in FMCG and packaging businesses, and revival of hotel business We value ITC shares using the SOTP approach applying 12.6x EV/EBITDA (unchanged) over FY24E EBITDA of Cigarette business; 21.0x EV/EBITDA over FY24E EBITDA of Hotels business (earlier 18.9x) ; 8.6x EV/EBITDA (unchanged) over FY24E EBITDA of Agribusiness; 6.0x EV/EBITDA at FY24E (unchanged) EBITDA of paper business and 8.8x EV/revenue over FY24E revenue of FMCG business (previously 8.0x) – We raise the target price to INR 400 per share (earlier INR 369); c Up 15.5 percent on MP. Accordingly, we maintain our “Buy” rating on the shares of ITC Limited.”

Shares of ITC Ltd closed on NSE: 346.00 each on Friday, up 0.058% from previous close 345.80. The stock had touched a 52-week high 353.20 (21-Oct-2022) and 52-week low on 207.00 (24-Feb-2022). If the stock reaches the target price stated by the above brokerage companies, it will set a new high.

Hindustan Unilever (HUVR IN)

Research analysts at broking firm Sharekhan said, “Revenue and PAT of Hindustan Unilever (HUL) grew 16% from Rs.14,751 crore and 9% to Rs.2,386 crore respectively in Q2FY2023. To moderate raw material price inflation of 22%.” Growth was mainly driven by price growth (~12%). Domestic volume growth was steady at 4% (was 6% in Q1FY2023) better than the industry’s 4-5% decline in Q2. Continued to gain market share in excess of 75%, which along with continued strong traction in premium products helped the company to post better sales volumes during the quarter on a year-on-year basis in gross margins due to raw material inflation but declined 580 bps to 45.8% (and 154 bps on a quarter-on-quarter basis), while lower advertising spend and cost savings curb the sharp decline in OPM to 22.9% on operating profit and adjusted PAT year-on-year, respectively. increased by 8% and 9%. One-time prior period tax credit of Rs. 258 crore led to an increase of 20% in the reported PAT.”

He further added that “HUL is focusing on premiumisation, market growth to drive penetration across key categories and digitization to drive consistent double-digit earnings growth in the medium to long term. The strategy also helps in continuously improving the market share (in 75% of the product portfolio). HUL is currently trading at 64x/54x its FY2023E/24E earnings. Leading position in some high-entry categories, its emphasis on innovation and market growth to stay competitive, and drive sustained earnings growth make it a good choice from a long-term perspective. Any pick-up in rural demand could help the company improve on volume growth in the coming quarters. We maintain buy on the stock with a revised price target of Rs. 3,005 (over October 2024 earnings).”

Research analysts at broking firm Motilal Oswal said, “HUVR sales and volumes were ahead of expectations in 1QFY23 but gross profit, EBITDA, PBT and PAT were broadly in line. Led by commodity cost inflation, before a gradual correction from 3QFY23E Margin pressure is likely to persist in 2QFY23E. Within the premium personal care portfolio, skin care is ahead of pre-Covid levels, although the color cosmetics portfolio is still below pre-pandemic levels, despite the recent improvement in dynamics Signs of recovery are improving – but only gradually – due to a potentially good monsoon, fertilizer subsidies, gradual reduction in commodity costs from decadal highs and improvement in premium personal care portfolio. Maintain BUY with TP.”

Research analysts at broking firm Axis Securities said, “Management is cautiously optimistic on the margins and demand front as prices of key raw materials have declined but have yet to see stability, while a meaningful recovery in the rural economy is expected on both sides.” Will maintain growth trajectory. Topline and Bottom line under check until at least Q3FY23. However, HUVR’s long-term growth prospects remain strong as management remains focused on driving 1) a broad-based portfolio and value-to-value metrics is spread across, 2) cost saving initiatives, 3) market growth and market share gains across the portfolio, 4) strong execution capabilities, which demonstrate its strength in a diverse product portfolio and strong financial acumen in this volatile and challenging environment. We have rolled over our estimates to Sep 24 EPS and maintained the BUY with the revised TP of 2850 (Sep-24 eps) Vs 2,810 (56x FY24 EPS) earlier.”

Hindustan Unilever Ltd shares closed on Friday 2,526.40 each, up 0.29% from the previous close 2,519.00. The stock had touched a 52-week high 52-week low of 2,734.00 and (03-Oct-2022) 1,901.55 on (08-March-2022). If the stock meets the target price set by the above brokerage firms then the stock will hit a new high.

Disclaimer: The views and recommendations given above are those of individual analysts or broking companies and not of Mint.