FMCG share price target

Following a sharp rally post the RussiaUkraine conflict, prices of most commodities, such as crude, copper, aluminum, steel and palm oil, corrected 17%40% from the top.

In terms of what is happening in the market, the retail industry has gone through dramatic changes more than you see in a lifetime. Covid-19 has permanently changed consumer behavior. But with increasing vaccination rate, people are coming out and doing what they couldn’t do for two years.

High Inflation will impact margins despite price hike EBITDA margin (11.7%) to remain flattish YoY with 30bps improvement on QoQ basis. We expect flattish to negative volume growth for most staple companies while QSR's will report double digit SSG on a low base....

material prices and 3) life time high valuations. We expect QoQ margin given current scenario of high RM inflation, slow demand and 3 rd wave impact, we rate D'Mart, HUL and Britannia as top picks....

Consumer stocks have seen sustained re-rating since 2009, resulting in most stocks trading at life time high PE with life time high profit margins. We note that FY21 growth was driven by market share gains on the back of superior supply chain and distribution at expense of unorganized players. Although we believe that structural drivers led by strong rural demand outlook and gains from digitization and supply chain automation are positive, further rerating looks a daunting task. We remain structurally positive on HUL, Britannia, JUBI, TTAN and APNT, however return expectations need to be moderate. We rate D'Mart, NEST and KNPL as top picks in consumption...

Most companies to record growth in 3QFY21 3QFY21 performance is likely to show signs of recovery led by sustained rural demand and gradual pickup in urban demand post unlock and normalization of supply chain. We believe that margins for select players will start correcting QoQ given rising commodity costs and comeback of ad spends, marketing and Apart from Titan and ITC(Cigarettes), we expect volume growth across all companies. Due to improvement in consumer sentiment and declining covid cases,...

As most of the economies are opening up and gaining momentum, demand for crude oil has also picked up amid tight supply as OPEC and Non-OPEC both cut its production level. Consequently, crude oil price (Brent) increased 29% MoM to average US$39.9/bbl. We expect oil price to remain in the broader range of US$35-45/bbl over the next quarter as demand would continue to be on a rising trend but higher price would bring back lost supply from US shale assets, which would keep price under check. However, on a medium to long-run we expect crude oil price to stabilise near US$50-55/bbl. OPEC cut its production level further to reach to the lowest level since May 1991 to 22.6mbpd vs 24.6mbpd in May'20 (30.4mbpd in Apr'20). Saudi Arabia was in a lead role with a production cut of 1.13mbpd MoM to 7.5mbpd in Jun'20 (11.6mbpd in Apr'20) while other countries saw a minor cut in production. This is in line with their commitment to bring down supply by 9.5mbpd which has further extended to Jul'20. We expect, if demand scenario doesn't improve much, production cut would be extended till year-end....

The Indian consumer sector has been going through volatile times as the lockdown across the country, due to Covid-19, has disrupted the entire manufacturing, supply chain & retail operations. Though essential categories continue to see strong growth due to pre-buying or bulk buying, some discretionary categories witnessed a slack in demand conditions. New trends have also emerged with sanitisers, disinfectants & immunity booster products staring at exponential growth in next few years. Even distribution channels have been seeing a swift change with e-commerce & digital space...

Against insipid demand backdrop where most MNC and domestic FMCG players have struggled to deliver growth, Patanjali Ayurveda Limited (Patanjali) has posted >100% sales growth in FY16 (from Rs21 bn in FY15 to ~Rs50bn in FY16), virtually entering every FMCG category. To assess sustainability of its g..