With Indian indices hitting multiple highs, the Nifty FMCG index has also joined the train. It is one of the best-performing sectors this year on the back of improving macro conditions, recovery in demand, moderation in raw material prices as well as margin improvement in most firms. Domestic brokerage house Religare Broking has come out with 2 high-conviction picks in this space. Let's take a look:
Colgate Palmolive: The brokerage has initiated coverage on the stock with a ‘buy’ call and a target price of ₹2,126, indicating an upside of 17.6 percent from its current market price of ₹1,807.30 (as on July 13). Religare believes the company would continue to see steady growth ahead because of its leadership position across product portfolio, parent expertise and focus on premiumisation.
The brokerage estimates the firm's Revenue, EBITDA, and PAT to grow at a 6.7 percent, 10.3 percent, and 10.8 percent CAGR, respectively, over FY23-25E.
With over 85 years of presence in India, Colgate- Palmolive India is the leader of the oral care segment and is also India’s most preferred oral care brand, reaching nine out of ten households. The product line of the company comprises an oral care range of toothpaste, toothbrushes, mouthwashes, and personal care items such as hand washes and shower gels.
The brokerage noted that Colgate remains a market leader in oral care hygiene with a strong presence in both toothpaste and toothbrush categories. They are constantly focusing on driving growth from the core segment i.e. toothpaste led by innovations, premiumisation and using science technology for products, it added. Going ahead, they are committed to shifting 100 percent of their toothpaste portfolio to recyclable tubes by 2025 in India, improving portfolio efficiency, focusing on innovation-led growth, and at the same time maintaining a leadership position, informed Religare.
"Being a leader in oral care over the years, now the company’s focus is on expanding and building personal care portfolio across segments such as skin, hair, body care, etc. Thus, the company has launched a range of products under Palmolive brands and further new launches in India would be supported by the expertise of global parent and its strong recall value," said the brokerage.
Colgate has risen around 16 percent in the last 1 year and 19 percent in 2023 YTD. It has given positive returns in 5 of the 7 months this calendar year so far and has added 8.5 percent in July so far. However, in the last 3 years, the stock has just risen 29 percent.
Marico: The brokerage has a ‘buy’ call on the stock with a target price of ₹646, indicating an upside potential of 21 percent from the current market price of ₹535 (as on July 13). It is a valuable player in the cooking and hair oil segment, said Religare.
On the financial front, Marico has seen a Revenue, EBITDA, and PAT growth of 9 percent, 9.7 percent, and 9.8 percent CAGR over FY18-23 and ahead from FY23-25E it estimates Marico's Revenue, EBITDA, and PAT to grow at 11.5 percent, 16.9 percent, and 17.1 percent CAGR. Religare remains optimistic about the growth prospects of the firm.
Marico is one of India’s leading consumer products companies in the global beauty and wellness space. Its portfolio of brands includes Parachute coconut hair oil, Saffola edible oil, Saffola ImmuniVeda, Saffola Mealmaker, Hair & Care, Parachute Advansed, Nihar Naturals, Mediker, Coco Soul, Revive, Set Wet, Livon and Beardo and Just Herbs, etc.
Marico is very much focused on expanding its digital portfolio and is currently earning 13 percent i.e. ₹950 crore of the domestic business revenue which includes ₹600 crore from foods and ₹350 crore from premium personal care segment, said the brokerage. Going ahead, they have plans to increase revenue share by earning ₹1,250 crore driven by a focus on innovation and premiumisation as well as scaling up business via digital initiatives, it added.
"Over the past few years, Marico has been strengthening the portfolio by adding products to its Saffola Brand and it contributes 31 percent share in Domestic business revenue. First, it was only edible oil but in the last few years with increasing demand and a plan for extension, it introduced food & related products such as Oats, salt, honey, instant noodles, immunity-boosting products, etc. Going ahead, Saffola edible Oil volumes are expected to grow in high single digit while its food portfolio will see double-digit growth led by innovations, focus on health products and increasing distribution reach," further stated the brokerage.
The stock has risen just 6 percent in the last 1 year and 5.5 percent in 2023 YTD, giving negative returns in 4 of the 7 months in the current calendar year so far. Meanwhile, in the last 3 years, it has advanced 56 percent.