Stocks To Buy: 7 Consumer Goods Stocks Where Motilal Oswal Has A “BUY”

Motilal Oswal in its latest report has recommended a host of consumer goods stocks. Here are 7 stocks where the brokerage has a "buy" call on.

7 Stocks to buy from the consumer good space

Name	Rating	Current market price
Varun Beverages	Buy	1329
Tata Consumer	Buy	775.65
Marico	Buy	515
ITC	Buy	331.8
HUL	Buy	2565.95
Dabur	Buy	262
Emami	Buy	430

Profit after tax, revenues to increase, says Motilal Oswal

For the 19 consumer companies under its coverage, Motilal Oswal expects cumulative 3QFY23 growth of +9.3% in topline, +9.6% in EBITDA, and +8.1% in PAT. The three-year sales/EBITDA/PAT CAGR is 12.9%/9.6%/7.0%, with EBITDA growth and PAT growth lagging sales growth because of persistent material cost pressure. "In terms of volume growth and revenue growth, our FMCG universe is likely to see another subdued quarter in 3QFY22, especially as rural demand remains weak. While some categories such as biscuits and cigarettes are showing signs of demand resilience, other categories such as paints/adhesives/innerwear are showing signs of lower growth on a very high base of the past couple of years. Going forward, weak rural sales growth from 4QFY22 may result in optically better growth from 4QFY23 onward, but on-the-ground rural demand is still adversely affected by inflationary pressures," the brokerage has said.

Rural markets a drag, says Motilal Oswal

According to Motilal Oswal, with no clear signs of recovery in the rural demand, we expect sales in Staples to be driven by price increases and some premiumisation. "Cumulative earnings growth appears better because of behemoths like ITC and Asian Paints. Among large companies, we expect APNT to report 9% YoY sales growth with 5% domestic decorative volume growth, and ~17%/18% EBITDA/PAT growth. For HUVR, we expect YoY sales/EBITDA /adj PAT growth of 14%/4%/4%. ITC is likely to post YoY sales growth of 5.2% on a high base, and it should sustain its healthy earnings growth trend, with EBITDA/adj. PAT expected to grow by 17.8%/12.8% (PAT growth trailing EBITDA growth mainly due to unusually high other income in the base quarter)," the brokerage has said.

Input cost decline not as expected

In the case of agricultural commodities, there has been additional inflation or low deflation. "While a sequential gross margin improvement is likely on a cumulative basis for our coverage universe, it will be partially offset by high-cost inventory in 3QFY23, keeping GMs under continued pressure YoY. Following a few quarters of subdued levels, ad-spending is rising in some pockets, checking sequential EBITDA improvement. 13 of 19 stocks under coverage are likely to report flat or lower EBITDA margins YoY, except for ITC (EBITDA margin expansion of
380 bps), Britannia, Asian Paints, Indigo Paints and Varun Beverages (margin expansion likely to be in the range of 110-140bp YoY," the brokerage has said.