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One Stock Stands Out Among CLSA's Key Summer Bets

CLSA picked its key bets as an early onset of summer is expected to aid makers of aerated beverages and juices to ice cream.
<div class="paragraphs"><p>(Source:Racool_studio/Freepik)</p></div>
(Source:Racool_studio/Freepik)
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CLSA has picked its key bets from the consumer sector as an early onset of summer is expected to aid makers of aerated beverages and juices to ice cream.

The research firm expects Varun Beverages Ltd. to be a key beneficiary as the company’s entire portfolio consists of summer products such as soft drinks, packaged water, and dairy products, according to its March 13 note.

Varun Beverages has completed greenfield expansions in Jammu and Bihar, increased retail outlet penetration and high levels of inventory in preparation for the season, bodes well for the company to capture increased demand from the heatwave, it said.

While Dabur India Ltd. and Emami Ltd. may see an overall positive impact from their summer-oriented portfolios, this will be offset by negative impacts on their winter-oriented portfolios, the brokerage said.

Hindustan Unilever Ltd., ITC Ltd., and Nestle India Ltd. have a low share of revenue coming from summer-oriented products and while categories like ice cream, chilled dairy beverages (Nescafe) and deodorants are expected to do well, the overall impact on these companies would not be high, according to the research firm.

India experienced its hottest February since 1901 and the IMD has predicted that central and northwest regions are likely to witness above normal temperatures over the next three months, while the south peninsular region is expected to see normal or below normal temperatures. Heatwaves also threaten crop yields and rural recovery.

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Top Consumer Bets

Dabur India

  • The research house rated the stock 'outperform' and revised the target price to Rs 600 from Rs 620, with an upside return of 13.2%.

  • CLSA said an increase in advertisement expenses is required achieve double-digit revenue growth.

  • The key risk include a slower-than-expected recovery, weak monsoon season, sharp rise in input costs and heightened competitive activity.

Emami

  • CLSA rated the stock 'outperform' and revised the target price to Rs 450 from Rs 475, implying an upside return of 15.5%

  • The research house revised the estimates and target price factoring the uncertainty in rural demand, given the highest contribution is from rural regions.

  • Slower-than-expected recovery, a sharp rise in input costs, an adverse spending climate, and heightened competition are key risks, the note said.

Varun Beverages

  • The research house rated the stock 'outperform' and revised the target price to Rs 1,500, implying an upside return potential of 11.5%.

  • Unfavourable seasonality and changing consumer preferences are key risks for Varun Beverages.

WRITTEN BY

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Anjali Rai covers markets and business news at BQ Prime...more
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