With keeping a time horizon of over two quarters, domestic brokerage and research firm HDFC Securities has shared its top two stock recommendations from the FMCG and lubricants sectors – Bajaj Consumer Care Ltd and Castrol India Ltd.
HDFC Securities’ top picks –
Bajaj Consumer: Bajaj Consumer’s winning combination of being debt free, being cash rich (~ ₹600 crore) and with negative working capital indicates the company is well financed with strong business model in place, the brokerage said. Even after taking into account, the higher dependence on single category, it feels the company trades at extremely unfair discount to its FMCG peers.
BCCL is also a good acquisition candidate for large FMCG players/PE players at the current valuations. “We think the base case fair value of the stock is ₹290 and the bull case fair value is ₹317 over the next two quarters. Investors can buy the stock in the ₹252-256 band and add more on dips to ₹222-226 band,” HDFC Securities note stated.
Castrol India: The brokerage highlighted that in light of the possible onslaught by EVs, the company is looking at different revenue streams for the future. The deal with 3M is a reflection of the company’s diversification into new avenues. This deal signed in May 2019 will bring a range of market leading vehicle care products to the automotive after-market.
The company is confident about prospects of its business in India over the long term and has decided to continue making investments in India unabated by recent slow growth. “We feel investors could buy the stock in the ₹135-138 band and add on dips to ₹119.5 –122.5 band. Base case fair value of the stock is ₹151 and the bull case fair value of the stock is ₹169 over the next 2 quarters.
At the CMP of ₹136.45 the stock trades at 15.8x CY22E EPS.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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