FMCG stocks have been gaining attention due to the recent state elections that demonstrated a growing dependence on mandates based on social welfare in India. This, coupled with an anticipated increase in demand for winter products has also brought about this trend.
The sector is expected to benefit from the increase in demand for winter portfolios that occurred in November, even though the urban market remains a challenge.
Analysts say that a number of Indian FMCG companies have seen growth opportunities, particularly in rural markets. Britannia (India), Colgate-Palmolive, Bikaji and Hindustan Unilever are among the top gainers.
Two FMCG companies could offer a 10-18% upside.
Marico’s ‘Buy rating’
Goldman Sachs reiterated its Buy rating for Marico and assigned a price target of Rs720. This represents a 10% potential upside over the current market price, which is Rs650.
Marico, despite challenging macroeconomic conditions has been able to maintain growth. This is largely due to its flagship Parachute brand which continues to grow market share despite the persisting inflation of input costs.
Saffola, the company’s portfolio, has become a major growth engine, especially in its food and digital first brands segments, where there is a rapid expansion of products and improved profitability.
Marico has seen its performance in the segment of edible oils improve due to a price-driven growth.
The Value-Added Hair Oils category (VAHO), however, remains a less strong area. However, it no longer represents a major drag on overall company growth.
Marico’s margins have been marginally affected by the copra price increase, but it is still well positioned to maintain its current momentum.
Marico stock is a strong performer, with a gain of 24.26% in the last year and 301.27% for the decade.
In March 2024, the company will distribute Rs 6.50 per share as a dividend to its shareholders.
Marico, with a capitalization of Rs84172.39 crores as of November 27th, continues to be an important player in FMCG.
Colgate-Palmolive rated ‘Buy”
Jefferies maintains a Buy Rating on Colgate-Palmolive. It has set a price target of Rs3,570. This is an 18% increase from the current price.
Its main strategy is to encourage consumers to increase their per capita consumption and up-trade, particularly in urban markets.
Its growth is based on initiatives such as encouraging brushing two times a day, and increasing rural awareness of oral health.
Colgate’s management strives to achieve a balanced growth in terms of volume, product mix and prices.
The company is optimistic that a balanced strategy will drive performance in the future, despite urban growth slowing and rural recovery plateauing.
Colgate also expands its focus to include personal care products by using the global portfolio of its parent company.
This includes interventions along the entire value chain, including product development, packaging, marketing, and distribution.
Jefferies, Nuvama Institutional Equities and Goldman Sachs are optimistic about Colgate-Palmolive’s strategy. However, other international brokerages such as Citi and Goldman Sachs remain cautious regarding the near-term growth of earnings.
Citi reports that the urban consumption trend remains weak. This reflects a wider slowdown of discretionary expenditure.
FMCG sector faces muted demand
The FMCG industry in India has seen a muted market over the past few months, due to sluggish festive sales, increased urban consumption, and a delayed winter season that affected seasonal products sales.
The second quarter saw a further decline in growth due to heavy rainfall, increased competition and other factors.
The sector will recover over the next few months. This is due to the fact that the winter portfolios are likely to be purchased in November.
Analysts remain confident about the long-term prospects of growth, despite short-term difficulties, thanks to strategic initiatives, and solid brand equity among key players such as Marico and Colgate-Palmolive.
This article Goldman Sachs and Jefferies say ‘Buy” on two FMCG companies poised for growth first appeared on The ICD
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