The first full Budget by the newly formed Modi 3.0 Cabinet- Budget 2024 will be tabled on July 23. With the onset of the monsoon and the Monsoon Session of the Parliament, it is a no-brainer that consumer staple companies, particularly FMCG majors are in focus. Companies like Nestle India, ITC, and Hindustan Unilever (HUL), are drawing significant investor attention.
Traders are closely watching the government’s potential moves to boost rural consumption and rev up the rural economy. The market is betting on the impact of these allocations on FMCG stocks.
“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 a sequential decline in crude and palm oil prices, inflationary agri-prices, and stability in VAM and other chemical prices in May 2024.”
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Stock Performance and Analyst Ratings
According to Trendlyne data, ITC’s consensus target price is Rs 495.79 apiece, suggesting a 17 percent upside, with 30 out of 34 analysts recommending a ‘buy’ call. Hindustan Unilever’s consensus target price is Rs 2580.50, indicating potential gains of 3 percent, but 25 out of 40 analysts suggest buying it. Nestle India is endorsed by 17 out of 36 analysts with an expected upside of 4 percent and a target price of Rs 2655.11.
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HUL’s Performance and Outlook
After a subdued FY24, marked by negative pricing and slower recovery in rural and mass segments, FY25 is expected to see gradual recovery for HUL. In FY24, revenue increased by 3 percent with a volume growth of 2 percent. Home care, BPC (Beauty & Personal Care), and F&R (Foods & Refreshments) grew 3 percent, 2 percent, and 3 percent YoY respectively. HUL’s premium portfolio outperformed other segments in FY24, according to Nuvama Institutional Equities.
“Q1FY25 is likely to be muted with negative pricing of 2 percent and a harsh summer impacting volumes of hot beverages. However, we expect pricing growth to return in H2FY25. Additionally, rural volume growth is likely to recover in H2FY25 due to potentially good rainfall,” Nuvama added, maintaining a ‘buy’ rating with 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, resulting in a total dividend of Rs 64 per share and a dividend yield of 3 percent over the last 12 months. Axis Securities reported that Hindustan Unilever (HUL) and ITC are among the top 15 large-cap dividend-yielding companies. Additionally, Jefferies recently upgraded HUL to a ‘buy’ rating with a revised target price of Rs 2,950.
ITC’s Market Position and Challenges
Cigarette-to-stationery major ITC is also under investor scrutiny ahead of the budget. The demerger-bound company remains in focus due to the potential taxation of tobacco products in the budget.
Emkay Global has a positive outlook on ITC, citing its strong execution and favorable macroeconomic factors that support its diversified businesses. However, near-term business pressures, such as cigarette margin stress, demand in the paper business, margin weakness, and a slowdown in the agriculture sector, present challenges. Recently, Emkay downgraded ITC to ‘add.’
“For the cigarette business, we see margin pressure after two consecutive inflationary leaf crop seasons, leading to an estimated 60 basis points YoY margin compression for FY25, which is expected to recover in FY26. Additional pressure is likely from increased competition and anticipated higher tax hikes in the Union Budget,” Emkay stated, setting a target price of Rs 460 apiece.
Nestle’s Performance and Outlook
Nestle India’s FY24 annual report, covering a 15-month period ending March 24, underscores the company’s enduring strengths and positioning as a prime revenue growth opportunity in the Indian consumer sector, according to Nirmal Bang Institutional Equities.
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Despite recent subdued volume growth, Nirmal Bang noted that there are no significant changes to their earnings estimates for FY25 and FY26. However, they highlighted concerns over Nestle’s valuation, currently standing at 59 times FY26E EPS, which they deem expensive without offering substantial upside in the short term. Nirmal Bang values Nestle at 60 times FY26E EPS, setting a target price of Rs 2,550, while maintaining an ‘Accumulate’ stance on the stock.
Nestle India’s shares underwent a 1:10 split in January 2024, and the company announced a dividend of Rs 8.5 per share with a record date of July 16, 2024. Axis Securities has a ‘buy’ recommendation on Nestle India, forecasting a target price of Rs 2,880. Meanwhile, Kotak Institutional Equities maintains an ‘add’ rating on the stock with a target price of Rs 2,550.
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(With Inputs)
