3 Fmcg Stocks Motilal Oswal Recommends Buying For Potential Gains

Motilal Oswal suggests investors to buy 3 stock of fast moving consumer goods sector. The stocks are Varun Beverages Ltd, ITC Ltd and Godrej Consumer Products Limited. In its consumer sector brokerage report, Motilal Oswal explained the about the reasons for potential growth in the stock price of the company and has suggested the target price of each.

According to the brokerage report, motilal oswal expects that all the 19 fmcg companies would experience a subdued 4QFY23, especially as there are no clear signs of revival in rural demand. . Many companies indicated that advertisement and promotion spends would normalize going forward as commodity costs stabilize.

''We expect a cumulative growth of 8.8% in the topline, 14.3% in EBITDA, and 9.7% in profit after tax, in 4QFY23, for the 19 consumer companies under our coverage. The three-year and four-year sales, EBITDA, PAT and CAGR is 15.9%, 16.8%, and 14.1%, and 10.3%, 10.3% and 10.6%, respectively."

However the brokerage feels that the performance of Varun Beverages, ITC and Godrej Consumer Products Limited will improve.

Buy shares of ITC Ltd, with a target price of Rs 450 per share (potential upside 17%)
Motilal Oswal feels there will be a revival in cigarette demand, an improvement in the hotels business, lower input cost pressures v/s peers and attractive valuations, thus makes ITC Ltd as one of top pick from a one-year perspective.

"We expect 13% YoY volume growth in cigarettes, maintaining mid-single digit four-year average volume growth. Watch out for Hotels' revenue growth and profitability, we expect EBITDA margin to remain flat sequentially, but expand sharply by roughly 500 basis point YoY. Corporate actions on demerger of businesses a key monitorable."as per the brokerage report.

The earnings per share (EPS) based on valuation for FY 24 and 25 is down by 0.2 and 0.3 percentage, as per Motilal Oswal and suggests a "BUY" rating with a target price of Rs 450 per share.

Buy shares of Godrej Consumer Products Limited, with a target price of Rs 1,115 per share (potential upside 15%)
It is given in the report that the appointment of the new CEO at Godrej Consumer Products Limited offers scope for a transformative change, especially if the company continues on its optimal capital allocation strategies and registers healthy domestic growth. As per the brokerage, the company is also likely to witness significant boost on margins over the next few quarters, led by lower palm oil costs.

"We expect the sharp decline in palm oil prices to lead to sequential and YoY improvement in growth mmargins. Watch out for outlook in household insecticides category. Despite likely higher ad spend, EBITDA growth YoY for 4QFY23 and beyond is likely to be over 25%. Watch out for the commentary on GAUM and Indonesia business."as per the brokerage report.

The EPS based on valuation for FY 24 is up by 0.1% and for FY25 is down by 0.3%, as per Motilal Oswal and suggests a "BUY" rating with a target price of Rs 1,115 per share.

Buy shares of Varun Beverages Ltd, with a target price of Rs 1,650 per share (potential upside 19%)

Motilal Oswal states the reasons for its liking Varun Beverages Ltd. "We like Varun Beverages Ltd owing to: increased penetration in newly acquired territories of South and West India, higher acceptance of newly launched products, and growing refrigeration in rural and semi-rural areas. We expect CSD sales volumes to grow 22% YoY in 1QCY23. We expect EBITDA margin to improve to ~19.4% v/s 18.8% in 1QCY22"

The EPS based on valuation for FY 23 and FY24 it is up by 5% and 3%, as per Motilal Oswal and suggests a "BUY" rating with a target price of Rs 1,650 per share.

Company name	Current Market Price (Rs/share)	1 year growth(%)	3-year growth (%)
ITC Ltd	385.85	48.69	112.59
Godrej Consumer Producte Limited	958.30	34.12	60.99
Varun Beverages Ltd	1461.20	125.15	516.2

Disclaimer:
The stocks have been picked from the brokerage report of Motilal Oswal, Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.