2 FMCG stocks should buy next week to increase sharply in 6 months

From the FMCG sector, brokerage firm HDFC Securities selected CCL Products and Marico Ltd, and they gave the stock a buy rating. The brokerage has recommended buying shares of CCL Products in the range of Rs. 377–386 and in addition to the positions above fall into the range of Rs. 348–356 with a target price of Rs. 449. For shares of Marico, HDFC Securities has recommended a buy when falling in the range of Rs. 437–446 and further increases with deep declines in the Rs range. 396-405 with a target price of Rs. 526. The company has given both stocks two-quarters time to reach their target prices.

Products CCL

HDFC Securities highlighted management’s comments by saying that “the Russia-Ukraine issue is not likely to have a significant impact on the company’s business. While there may be some short-term volume delays due to logistical disruptions, the company’s long-term fundamentals remain intact. Management is confident of delivering >15% YoY yield growth. However, due to rising coffee prices, revenue growth is expected to be 20-25% YoY. We expect an earnings CAGR of ~26% in FY22-24E due to a) Vietnam’s capacity doubles (the company gets a tax break here), b) increases the proportion of small packages & increases the amount of labor. packaging capacity, and c) increase the share of Indian Branded Enterprises in total revenue. “

“Based on strong operating performance coupled with a better working capital cycle, we expect superior FCF generation and gradual expansion of RoCE by 500 basis points in FY 22-24E. Given the potential for improved revenue growth, the stock is likely to rebound if the company continues to maintain a good earnings record. We assume that the stock fair value base case is 413 (17x EPS Fiscal Year 24E) and the increased fair value is 449 (18.5 times EPS FY24E). Investors can buy in stock Strip 377-386 (15.8x FY24E EPS) and more in embedding Margin 348-356 (14.5 times EPS FY24E),” the broker said.

In the face of geopolitical challenges caused by wars in Russia and Ukraine, CCL maintained stable operations thanks to a 7% increase in volume and 13% increase in revenue over the same period last year. The company’s gross margin dropped severely by 7% y/y and the company reported negative EBIDTA growth due to a 329 percentage point drop in EBIDTA margin y-o-y but a 7% increase in NPAT. Compared with the last year. 53 Cr.

The brokerage company also emphasized that “The newly launched 3,500-ton capacity in Vietnam is now running at optimal levels due to a sharp increase in orders. The rollout of an additional capacity of ~14,000 MTPA in Vietnam (which will double capacity in Vietnam to ~28,000 MTPA) is underway and is expected to be completed by Q4FY23. CCL is also contemplating adding more Spray Dry Coffee capacity in India, where the process will begin at the end of CY22. “


According to HDFC Securities, Marico posted steady revenue growth, with EBITDA margins expanding (unlike shrinking for other companies). Revenue grew 7% YoY (+35% in Q4FY21 and +13% in Q3FY22). Domestic production increased 1% YoY (+25% in Q4FY21 and unchanged in Q3FY22). Growth in output at a three-year CAGR of 7%. Umbrella yield fell 1% YoY, while Value-Added Hair Oil increased 3% YoY. The Saffola franchise grew 17% YoY, while the food category grew 17% YoY. Total FMCG market volume fell 4% in Q4, while FY22 volume increased 3% YoY.

The brokerage further emphasized that its gross margin increased by 33 percentage points year-on-year (-513 percentage points in Q4FY21 and -318 percentage points in Q3FY22). While rice bran / LLP / HDPE increased 26/9/19% YoY, Copra prices fell 31% YoY and 9% QoQ. Staff/consulting/other expenses increased by -7/18/11% YoY. EBITDA margin increased 16% year-on-year to 16%. EBITDA increased by 8% YoY. Domestic/international EBIT margins increased by 7% / -21% YoY (-463bps / + 266bps in Q4FY21). In Q4FY22, the company recorded a one-time provision for 8 Have bad debts, bad debts related to previous years in the section ‘Other expenses’. Meanwhile in FY22, revenue grew 18% y/y to Rs 9,512 with both domestic and international business growing among the teenagers. EBITDA margin was at 17.8%, down 201 bps year-on-year, driven solely by gross margins falling to 409 bps. Spending on A&P (at 8.4% of Revenue) grew 14% YoY. HDFC Securities said both EBITDA and NPAT increased 6% year-on-year.

HDFC Securities stated that “In India, rising inflation, exacerbated by geopolitical tensions, continues to affect consumer sentiment in general, and even more so in rural areas. As companies use price increases to counter the continued input cost push, consumers continue to feel pinched. As a result, the FMCG market continued to decline in Q4 in terms of volume. Against this backdrop, Marico’s domestic business delivered a resilient 5% revenue growth, with an underlying volume growth of 1% on a high basis of 25%. Output growth on a 2-year CAGR basis remains strong at 12%. The inherent strength of brands, focused execution and branding investments have helped 97% of portfolios consolidate or gain market share and 94% of portfolios penetrated, both on a MAT. “

“In our view, Marico could be a dominant player in the FMCG space to maintain margins in such a challenging time. However, output growth in the short term could be a challenge given inflationary conditions. We assume that the stock fair value base case is 491 (35x EPS Fiscal Year 24E) and its fair value in the event of an increase is 526 (Fiscal year EPS 38 times). Investors can buy stocks when prices drop Band 437-446 (32x FY24E EPS) and added on deep reduction HDFC Securities said in its note 396-405 (29x EPS FY24E).

The views and recommendations expressed above are those of individual analysts or brokerage firms, not those of Mint.

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