Ahead of the union budget 2024-25 and monsoon season, consumer staple companies, particularly the FMCG major like Nestle India Ltd, ITC Ltd and Hindustan Unilever Ltd (HUL), attract investors' attention on Dalal Street. Traders are keenly watching the government's move to push rural consumption amid the distress and upcoming monsoon.
"Over the past three months, there were price hikes across several HPC categories and in select F&B categories, possibly led by some transient inflationary headwinds," said Kotak Institutional Equities. "On the raw material front, we witnessed sequential decline in crude and palm oil prices; inflationary agri-prices; and stability in VAM and other chemical prices in May 2024."
According to the data from Trendlyne, the consensus target price of ITC is Rs 495.79 apiece, suggesting an upside of 17 per cent with 30 analysts out of 34 suggesting a 'buy' call on the stock. Hindustan Unilever's consensus target price is Rs 2580.50, with potential gains of merely 3 per cent, but 25 out of 40 analysts suggest to buy it. Nestle India is being commended by 17 out of 36 analysts with an upside of 4 per cent and a target price of Rs 2655.11.
After a subdued showing in FY24, flagging negative pricing and slower recovery in rural and mass segments, FY25 is likely to mark a gradual recovery for HUL. In FY24, revenue edged up 3 per cent with volume growth of 2 per cent. Home care, BPC and F&R grew 3 per cent, 2 per cent and 3 per cent YoY. HUL’s premium portfolio surpassed the rest in FY24, said Nuvama Institutional Equities.
"Q1FY25 is likely to be muted with negative pricing of 2 per cent and a harsh summer impacting volumes of hot beverages. That said, we expect pricing growth to come back in H2FY25. Also in H2FY25, we expect rural volume growth to likely recover on the back of potentially good rainfall," it added with a 'buy' rating and a target price of Rs 2,885.
Shares of HUL turned ex-dividend on June 14, 2024 for a final dividend of Rs 24 per share and a total dividend of Rs 64 per share, leading to a dividend yield of 3 per cent for the last 12 months. According to a report from Axis Securities, HUL and ITC were among the top 15 largecap dividend yielding companies. Jefferies recently to upgrade HUL to 'buy' call with a revised target price to Rs 2,950.
Cigarette-to-stationary major ITC is another company which remains on the radar of the investors ahead of the budget. The demerger-bound company remains in the spotlight on the back of taxation of tobacco products in the budget and once again it is hogging the lime lights.
Emkay Global is positive on ITC due to its better execution and macros supporting its diversified businesses. However, amid the near-term business pressures like cigarette margin stress, demand in paper business & margin weakness, and the slowdown in the agriculture sector. However, it recently downgraded ITC to 'add'.
"For the cigarette business, we see margin pressure after two back-to-back inflationary leaf crop seasons, leading to 60bps YoY likely compression in margin for FY25, which is likely to recover in FY26. Additional pressure is likely to be from the surge in competition, and expectations of higher tax hike in the Union Budget," said Emkay with a target price of Rs 460 apiece.
Vaishali Parekh, Vice President of Technical Research at Prabhudas Lilladher said that ITC has been in the consolidation phase for quite some time after the gradual rise from the bottom made at around 400 levels and made a higher bottom formation pattern in the daily chart. A decisive close above the of Rs 440 is expected to rise further to Rs 480–500 levels in the coming days.
"The indicators have turned favourable, with the RSI showing a trend reversal, indicating a good revival from the oversold zone, and is on the rise, showing a positive bias. With good volume participation witnessed, we recommend a buy in this stock for an upside target of 480 - 500, keeping a stop loss of 400," she said in her note on Thursday.
Nestle's FY24 annual report (for the 15-month period ending March 24) highlights its underlying strengths and the company remains one of the best revenue growth opportunities in the Indian Consumer universe despite seeing subdued volume growth recently, said Nirmal Bang Institutional Equities.
"There is no material change to our FY25E and FY26E EPS estimates. However, valuation at 59 times FY26E EPS is expensive and does not offer any significant upside from a one-year perspective. We value Nestle at 60 times FY26E EPS to arrive at our target of Rs 2,550. We maintain our 'Accumulate' stance on Nestle," said Nirmal Bang.
Shares of Nestle traded ex-split in 1:10 ratio in January 2024, while the company has announced a dividend of Rs 8.5 per share with a record date of July 16, 2024. Axis Securities has buy call on Nestle India with a target price of Rs 2880, while Kotak Institutional Equities has an 'add' rating on the stock with a target price Rs 2,550.
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