Dabur, Godrej consumer Products: What should investors do with these FMCG stocks as index outperform market?

Led by ITC, FMCG stocks have been on a roll for the past few trading sessions. FMCG index has gained around eight per cent in the last one week as on July 7 in comparison to over two percent jump by Nity50 during the same period. ITC share, on the other hand, has gained nearly seven per cent in the same duration.  

However, two FMCG stocks that are in focus on Thursday are Dabur and Godrej consumer Products post their quarterly updates. Outperforming ITC, Dabur has gained over 9% and Godrej Consumer jumped nearly 13% in the last five trading sessions.  

Dabur 

Dabur India Ltd. in its exchange filing said that it witnessed pressure on consumption across categories led by a lower share of income available for spending on consumer staples. 

Global brokerage houses have been bullish on this FMCG counter.  CLSA has maintained an outperform rating with target price of Rs 610, while CITI sees a target price of Rs 615 for Dabur. CITI maintained a 'buy' on the stock.  

Meanwhile, domestic brokerage house Centrum Broking seems to be more bullish among all with a target price of Rs 650.  

We reckon off high base in Q1FY22 Dabur benefited from high demand for Covid contextual products, but over last few quarters the demand has waned off, said the broekrae. It believes the imported inflation (crude oil and vegetable oil) pushed FMCG companies to execute higher price increases, yet Dabur took calibrated price changes which could reflect in around 5-6% volume growth.  

"However, given normal monsoon leading to recovery in rural markets to reflect better operating performance for Dabur in 2HFY23. We remain positive and maintain Buy with TP Rs 650," it said.  

Godrej Consumer Products 

Some of our short-term challenges such as continued unprecedented global commodity inflation and the performance of our Indonesia business, as highlighted in the previous quarter, continued to play out in this quarter as well, impacting consumption and margins, said Godrej Consumer Products in its regulatory filing. 

CLSA though gave an outperform rating with a target price of Rs 890 against Wednesday's closing price of Rs 880, it maintains a mixed stance on outlook of the stock. It sees a 200-basis points contraction in the company's EBIDTA margin to 17.5 percent.  It feels the company is likely to report 8% topline growth with 10% growth in India and 6% in international business.