Top Stock Picks: HDFC Securities Recommends These Consumer Discretionary Stocks To Watch Now

HDFC Securities is keeping a watch on the Consumer Discretionary category and has selected Kansai Nerolac as its top recommendation with a buy rating for a target price of Rs 630 prior to its Q4 results.

As per the brokerage "Our discretionary universe is expected to clock 11/2% revenue/EBITDA growth YoY (partly impacted by Omicron) in Q4FY22 (three-year revenue/EBITDA CAGRs of 15/17% respectively). F&G, jewellery, paints, apparel, and footwear are expected to clock 21%, 16%, 14%, 6%, and -2% (three-year CAGRs). Ticket sizes in retail, though normalising, remain elevated from pre-COVID levels; footfalls are yet to catch up."

"While profitability is recovering across categories, (1) high commodity prices, (2) restoration of rent/other SG&A overheads coupled with intermittent demand disruptions are likely to keep margins (ex-jewellery) under pressure. We bake in a 110bps EBITDAM decline for the aggregate universe (12.5%). Apparel, footwear, and paints are likely to feel the heat more vis-à-vis other categories. Store additions have picked up across retail categories," the brokerage has said.

As per HDFC Securities "Value chain checks suggest the following: (1) in F&G, international e-tailers, Reliance Retail, and quick commerce players have been improving their assortment availability and pricing mechanisms. Hence, competitive intensity would be a key monitorable for strong offline incumbents; (2) market share gains towards strong operators is more pronounced in jewellery and paints."

"While our revenue/EBITDA growth expectations over FY19-24 and steady-state return profiles have not changed materially, the dislocation between value and price within the discretionary pack remains wide (most trade between 50-200x FY24 P/E). Any disappointment in demand recovery, courtesy rampant inflation, and a negative margin surprise could hurt the performances of stocks," HDFC Securities has claimed.

Consumer Discretionary Stocks To Watch - HDFC Securities

Company	Recommendation	Target Price In Rs
Avenue Supermarts	SELL	2,700
Titan	SELL	1,750
Aditya Birla Fashion and Retail Ltd	ADD	310
Trent	SELL	800
Shoppers Stop Ltd	SELL	210
TCNS Clothing Co Ltd	SELL	575
V-MART	REDUCE	3,500
Asian Paints	SELL	2,550
Berger Paints	ADD	700
Kansai Nerolac	BUY	630
Bata	SELL	1,400
Relaxo	SELL	970
Source: hdfcsec.com. Data as of 27 April 2022