6 Stocks From FMCG That BOB Capital See Potential Upside

An analyst from BOB Capital did a coverage report on consumer staples sector. While seeing recovery in fast moving consumer goods(FMCG) space, in rural belt, he identified six companies that show a potential upside. Given below are details.

As per the coverage report, Rural consumption, approximately 40% of the FMCG industry's volumes, which was sluggish over the past six quarters, show green shoots, indicating it has emerged towards the end of 2022. Even the government policies like wage hikes under the MGNREGA scheme, free foodgrains, hikes in minimum support crop prices, etc have been favourable for the recovery of FMCG in rural belt.

Strong rural footprint is the key to growth for FMCG players. They are banking on rural India for growth and making concerted efforts to deepen their direct reach in these markets. Increased government spending in rural areas, a good monsoon, better crop realisations and improved non-farm incomes are expected to boost consumer sentiment. "We note that companies with strong product portfolios, a large rural presence and localised marketing strategies are gaining market share in respective categories despite the challenging demand environment." reported the analyst.

According to the report, "inflation headwinds have started to moderate from Q2FY23. Key inputs such as crude oil and palm derivatives have corrected 35-50% from peaks, the benefit of which will percolate through in coming quarters. Though prices of several agricultural commodities remain firm, most consumer staples players expect to see moderation in raw material cost. Our channel checks with key players in the FMCG supply chain, including distributors, wholesalers and stockists, indicate that the revival in rural markets has continued in the current quarter and volume offtake has been better than previous quarters."

The analyst has given a strong buy on two stocks. "We continue to prefer BRIT (BUY, TP Rs 5,623) and NEST (BUY, TP Rs 22,860) for their strong network buildup in rural India which offers scope for market share gains and lends a measure of resilience even amid a difficult macroeconomic climate. BRIT is trading at 44x/39x FY24E/FY25E EPS and we continue to value the stock at 51x FY25E EPS. NEST is trading at 62x/54x CY23E/CY24E EPS and we value it at 67x CY24E EPS."

The following are the details of the 6 stocks which show a potential upside are

Company Name	Current Market Price (Rs/share)	Target Price (Rs/share)	Potential Upside (%)
Britannia Industries Ltd	4,285.25	5,623	30.98
Godrej Consumer Products Ltd	946.15	1,112	21.53
Hindustan Unilever Ltd	2,477	3,069	25.68
ITC Ltd	376.85	459	20.79
Nestle India Ltd	18,930	22,860	25.16
Tata Consumer Products Ltd	704.35	924	33.33

Disclaimer:

The stocks have been picked from the brokerage report of BOB Capital Markets Ltd. Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.