Brokerage Nomura is finding valuations in the consumption space reasonable along with prospects of strong growth, and has recommended buying HUL, ITC and Marico in its latest note after the FMCG majors issued third quarter business updates indicating revival in consumer sentiment.
The note said competitive intensity from D2C brands may ease and quick commerce could act as a tailwind to spur demand for the FMCG players. The leading players may undertake some price hikes in coming quarters, said Nomura, but its impact on volumes may not be significant. For FY26, Nomura sees volume growth for leading consumer staples companies at 5.5%, and a double-digit EBITDA growth of 12%.
The FMCG majors could potentially profit from an easing inflation trajectory, and targeted policy support measures for consumers, said Nomura. It projected a target price for HUL, ITC and Marico at Rs 3100, Rs 575 and Rs 760 per share, respectively.
HUL shares have been lagging the benchmark index, delivering a negative 5% return in last one year. From the September 2024 peak, the Nifty FMCG index is already down nearly 14%.
ITC has been in focus after the demerger of the hotels business, and an underwhelming 2024 with a negative return of 4% in last one year. The upside for ITC seems to be backed by the buoyancy of demand for hotels and the revival in agri business, according to a recent Antique note.
Shares of Marico are higher by over 1.5% in trade on January 10, with a strong 28% return in the last one year. Marico is among Nuvama's top picks from the consumption space, and Citi too has a Buy on the stock with a target price of Rs 750 per share. The consolidated revenue growth for Marico is expected to be in the mid-teens for Marico, as per CLSA, and the full-year revenue growth is likely to be in double-digits.
The market view is that the rural category could see a gradual recovery, outpacing the urban markets in the third quarter results. However, sluggish urban demand despite the festive season could keep the volume growth subdued. The impact of recent price hikes will also need to be assessed in the coming quarters.
CLSA too had turned bullish on FMCG, rating consumer staples as its largest 'Overweight' in India portfolio, with analyst Vikash Kumar Jain calling it an anti-consensus call. "...the hints that we have got from recent state elections, plus the good rainfall and sowing that we have seen, may just bring back affordable consumption to life," Jain recently said.
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