Morgan Stanley's Attractive Stock Bets This Festive Season
As India's festive season begins, Morgan Stanley has listed stocks from the "buoyant" consumer sector that stand to gain.
As India's festive season begins, Morgan Stanley has listed stocks from the "buoyant" consumer sector that stand to gain.
Discretionary and retail stocks have outperformed the index in the first half of nine out of the last 11 years, barring fiscals 2017 and 2021, the research firm said in a Sept. 26 note. The sectors also outperformed in the second half of the nine out of 11 years, except in fiscals 2013 and 2021, it added.
Medium-term outlook for these sectors looks strong, according to Morgan Stanley. The momentum of store additions has continued in the first quarter of this fiscal and is expected to sustain in the medium term. The footfalls in malls and retail stores continue to recover and stay above the pre-covid levels, it said.
The margin trends for the companies that come under these sectors are expected to improve as well, Morgan Stanley said, adding that fiscal 2022-2024 earnings CAGR could remain strong.
Stocks Likely To Benefit
Titan
The jewellery maker's share of the market in jewellery items has been rising since 2016. Jewellery sales are driving sales of the company that also makes watches and eyewear, Morgan Stanley said
The third and fourth quarters, mostly dominated by the festive season, contribute to 55% to 70% of it annual revenues, the brokerage said.
Meanwhile, its EBIT margins are higher than the pre-Covid levels for almost all divisions, it said.
Titan could add 45 new stores for its jewellery brand in fiscal 2023, from 40 in pre-pandemic fiscal 2020.
Morgan Stanley has an overweight/attractive view, according to Bloomberg data. It has a target price Rs 2,902, implying a potential upside of more than 11%.
Nykaa
Morgan Stanley expects FSN E-Commerce Ventures Ltd, the operator of online beauty brand Nykaa, to record the fastest growth among its coverage of stocks.
With the rise in per capita income, beauty spending has been sharply rising globally, the brokerage said. "We expect the BPC (beauty and personal care) market will reach $31 billion by fiscal 2027, with a rising share for beauty and e-commerce."
Morgan Stanley has an overweight/attractive view on the stock, with target price Rs 1,889, suggesting an upside of nearly 46%.
Jubilant FoodWorks & Avenue Supermarts
The footfalls in malls and retail stores continue to recover and stay above the pre-covid levels, the brokerage said.
While the net store additions remains strong in the first quarter of this fiscal, the brokerage expects the trend to continue in the medium term.
Jubilant FoodWorks Ltd., the operator of pizza chain Dominos, could see net store additions rise to 200 in fiscal 2023, from 108 in fiscal 2020, a pre-pandemic year.
Avenue Supermarts could add 40 new stores next fiscal year, compared with 38 stores in the pre-Covid year.
Morgan Stanley has an overweight/attractive view on Jubilant and Avenue Supermarts. It target price of Rs 657 for Jubilant implies a potential upside of about 8%, and Rs 4,590 target for Avenue Supermarts suggests an implied return of 7%.
Morgan Stanley much more bullish on the four stocks than the street.
Morgan Stanley estimates growth to bounce back for Jubilant Foodworks, Titan and Avenue Supermarts in two fiscals through FY24, and expects it to say healthy for Nykaa.
Morgan Stanley predicts an earnings recovery for all the four consumer discretionary companies in the next two fiscals.