How to best tap the growth in FMCG sector? Look at these 3 stocks

​Target Price: Rs 920
​Upside Scope: 5%

​Rationale
​VBL has consistently outperformed its peers in recent quarters despite the volatile environment. Going forward, it is expected to perform well due to 1) normalisation of operations and gaining market share in the newly acquired territories after the disruptions of COVID-19, 2) continued management focus on efficient go-to-market execution in the acquired and underpenetrated territories as reflected in the recently commissioned Bihar facility (it has started gaining market share), 3) expansion of distribution reach to 3.5 million outlets in CY23 from the current 3 million, 4) focus on expanding Sting, coupled with an increased focus on expanding the value-added dairy, sports drink (Gatorade) and juice segments; and 5) robust growth in international regions.

Target Price: Rs 540
Upside Scope: 21%

Rationale
Axis Securities believes that ITC's narrative is strengthening as all business units are on the right track: – 1) stable growth in cigarette volumes due to market share gains and new product launches; 2) FMCG business reaching the inflection point as EBIT margins expected to increase from 7.7% in FY22 and driven by – the ramp up in the outlet coverage, effective implementation of WIMI strategy, promotion of premiumization, leveraging demand and supply side technologies and moderation of raw material costs; 3) strong and stable growth in hotel business as travel, wedding, and corporate activities increase; 4) stable and decent performance in paperboard and agricultural business in recent quarters. Reasonable valuation among the entire FMCG pack provides a large margin of safety.

​Target Price: Rs 750
​Upside Scope: 23%
​Rationale
​Management remains confident in maintaining its volume guidance of 20-25% in the near future based on the strong order book. The firm has strong positioning in international markets and it continues to gain market share and enter new business areas. Doubling of capacity in Vietnam from the current 13,500 MT to 30,000 MT and new capacity expansion in India will result in strong volume growth over the next 2-3 years. Expansion of domestic consumer business and entry into high-margin branded retail business (Continental Coffee, Plant-based meat protein).

In the medium term, domestic consumption play may deliver better returns in this volatile environment. Moreover, rural demand is expected to pick up. Consumer price inflation is expected to recede eventually, with RM prices turning stable.