MOFSL Recommends Top FMCG Stocks: HUL, Godrej Consumer, Dabur Among Best Buys After Strong Q1 Growth

During the first quarter of FY25, fast-moving consumer goods (FMCG) companies saw steady growth in volume as demand improved, and their profit margins also expanded. Analysts expect this growth to continue in the coming quarters due to stable economic factors and hopes of a good monsoon season.

6% Revenue Growth in FMCG

Motilal Oswal Financial Services (MOFSL) reported that FMCG companies they cover saw a 6% year-on-year (YoY) revenue growth in the June 2024 quarter, up from 4% in the March quarter. This growth is driven by increased demand, particularly in rural areas.

Impact of Summer and Elections

The report noted that harsh summer conditions and election-related restrictions affected consumption in some categories, such as home insecticides, beverages, alcoholic drinks, and paints, but increased demand for cooling products. Rural markets are expected to continue performing well. Among the companies MOFSL covers, four experienced double-digit revenue growth, while two saw declines.

Price Hikes Expected in Second Half of FY25

FMCG companies have been focusing on marketing and distribution, but their EBITDA margins have grown more slowly than their gross margins. There is an expectation that some companies may increase prices in the second half of FY25 to counter rising raw material costs.

MOFSL’s Positive Outlook on FMCG Sector

MOFSL highlighted that the FMCG sector remains attractive due to expected volume recovery in FY25 and FY26. The earnings cuts seen earlier this year have already been reflected in stock prices, leading to a 15-20% decrease in valuation multiples of staple companies compared to their five-year averages. As volume growth improves, these valuation gaps are expected to narrow.

Top FMCG Stocks to Buy

MOFSL continues to favour companies like Hindustan Unilever, Godrej Consumer Products, and Dabur India. They also recommend buying six FMCG stocks with the following target prices:

• Hindustan Unilever: ₹3,250
• Godrej Consumer Products: ₹1,700
• Dabur: ₹750
• ITC: ₹575
• Marico: ₹750
• Emami: ₹950

These companies are expected to benefit from better product mixes, operating leverage, and growth in their premium product portfolios, leading to improved earnings in the coming years.