FII strong inflow in the market has already lead to Rupee appreciation and we expect bullish trend to continue in the stock market & positive sentiments to remain strong.
Eventually, Nifty broke out of the range and bulls continued having the upper hand throughout the last week. The index registered the positive close for the fifth day in a row and closed with the weekly gain of around 3.5 percent.
After consolidating for about 18 weeks, the index has given breakout on the upside and weekly chart closed with a big white candle and all momentum indicators suggesting that bulls are gearing up for the big move in coming days.
On Friday’s session, we have seen mild profit booking at higher levels and closed off the day’s high that formed a vague shooting star pattern on daily chart suggesting mild profit booking is likely after a sharp rise but it is unlikely to damage the current trend.
India’s trade deficit narrowed to $9.6 billion, which substantially reduce current account deficit. It is mainly attributable to lower gold import and stable exports. This stated number is lowest in 17 months, which is a welcome addition on macroeconomic front and this is expected to further strengthen the rupee. As strong FII inflow in the market has already lead to rupee appreciation, we expect the bullish trend to continue in the stock market and positive sentiments to remain strong.
Nifty has formed “rising window” in recent up move which will act as important support zone in the coming week, so hold the position till 11,637 that is likely to be touchable with the support level of 11,180. If the aforesaid level approached without retracement then traders should consider to book profit and wait for the mild retracement to enter again at lower levels.
Minor dips after such up move are normal but taking the broader view into perspective, any dips are likely to be bought and we could see the new all-time high in coming days. As per the options data, the trading band is clearly shifting upward and base for the next week is likely to be 11,200. 11,600 Call strike price holds the highest cumulative open interest and likely to be the upper band for the week.
MSP for farmers and normal monsoon prediction in the year ahead would turn out to be fruitful for the FMCG sector. Hence, we expect the FMCG sector to perform this year owing to an increase in consumption and rural boost by the government in Budget 2019. This is expected to support higher domestic volumes for the respective companies in the next few years.
Here are two buy ideas:
Dabur India | Rating: Buy | CMP: Rs 425 | Target: Rs 495 | Return: 17 percent in the long term
Dabur is one of the largest ayurvedic and natural health care company having a wide distribution network, covering 6.3 million retail outlets, next only to HUL’s 7 million retail outlets. Though HUL’s direct reach stands at 3.5 million outlets, Dabur’s direct reach is only at 1 million outlets, which makes immense room to shift dependency from wholesale to direct distribution. Looking ahead, by 2020, Dabur targets ayurvedic products to constitute more than 75 percent of its sales in India, from around 60 percent now.
In line with its focus on Ayurvedic medicinal products, Dabur launched three new products in its branded ethical portfolio, i.e., Agnisandeepam Churna, Dadimavaleha, and Vasant Meha Ras. In addition, strengthening its presence in the shampoo market, Dabur relaunched the Vatika Shampoo range with Satt Poshan. Moreover, the company plans to launch various new products across categories like Juices, Homecare, Toothpastes, etc in FY 20, which would bring the company into another level of growth.
On numbers front, Domestic FMCG business recorded value growth of 15.2 percent led by volume growth of 12.4 percent during the quarter. While international business reported 3.4 percent growth with constant currency growth of around 1 percent, impacted by continued underperformance of MENA markets and adverse currency movement.
On profitability front, the company posted healthy numbers for Q3 FY19, revenue during the quarter increased 11.8 percent with EBITDA growth of 10.8 percent YoY. High raw material cost was offset by lower advertisement and other expenses. Thus, EBITDA margin contracted marginally to 23.7 percent. Profit was up 10.2 percent. Operating margins in international business declined around 250 basis points because of increased trade schemes, adverse material inflation and adverse currency movements.
Led by Dabur’s strong brand recall in ayurvedic space coupled with new launches, focusing on healthcare and government initiative, we remain optimistic on broad-based growth, market share gains and recovery in international business. We estimate EPS at Rs 9.90 for FY 20 with Est. P/E at 50x, share price turns around to Rs 495.
Marico | Rating: Buy | CMP: Rs 340 | Target: Rs 384 | Return: 13 percent in medium term
Marico, being one of India’s leading consumer products group, in the global beauty and wellness space touches the lives of one out of every three Indians. Parachute is the leading brand in the Indian cosmetics and toiletries industry and has continued to show volume growth, though Saffola growth was disappointing.
Marico wants to reduce dependence on Parachute and Saffola by driving new things in the premium segment, like male grooming, serums, hair nourishment and foods are expected to have a significantly higher share in the next five years. Nevertheless, chemist cosmetic sub-segment being the premium part of the portfolio would also be accounted for.
Going forward, Marico eyes 13-15 percent revenue growth over the next 3-4 years, with 10 percent contribution from volume growth. Also, it is eyeing Rs 10,000 crore of topline by FY21-22. The company is focusing on strengthening its core portfolio, expanding to new markets and exploring its products portfolio to e-commerce and modern trade channels.
On the rural growth front, focus on direct distribution channel would continue to prevail. During Q3, rural sales were impacted as monsoon was upsetting. But, the company expects to move up the sales number (currently contributing around 32 percent of domestic revenue) by at least 3-4 percentage points in the next 3-5 years by driving penetration. Moreover, commenting on the international business, it contributes to about 22 percent of the Group’s revenue. Marico is targeting a move towards South Asia and South East Asia, though Africa and Middle East remain dubious owing to low consumption and complications.
Per capita consumption of cosmetics and toiletries industry is lower in India compared to both the global and regional levels. Keeping all this into perspective, industry being supportive, we value Marico as per P/E valuation. Estimated P/E at around 42x, EPS (est.) at Rs 9.15 for FY20, the estimated target turns out to be Rs 384 in medium term.
The author is Senior Research Analyst at Rudra Shares & Stock Brokers.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are her own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.