Britannia, Nestle India Upgraded By HSBC On Recent GST Cuts — Check New Target Price
The brokerage noted that a combination of an income tax cut, GST cut, and a repo rate cut has the potential to trigger an improvement in demand.
HSBC has upgraded Britannia Industries Ltd. from 'reduce' to 'hold' and hiked the target price to Rs 6,140 from earlier Rs 5,120. The brokerage said that, "we see the consumer sector recovering from here, driven by a favorable base, income tax cuts, and GST rate reductions".
In the same light, the brokerage has upgraded Nestle India Ltd. to 'hold' from 'reduce' and hiked its target price to Rs 1,270 from Rs 1,090.
Target PE multiples for Britannia and Nestle India have been raised to 50 times (up from 45 times) and 60 times (up from 55 times), respectively, as both companies are expected to gain the most from the policy change.
HSBC noted that the consumption environment has been muted since its post-COVID-19 spurt. While structural issues remain, a combination of an income tax cut, a Goods and Services Tax (GST) cut, and a repo rate cut has the potential to trigger an improvement in demand, especially urban areas, which have been weak for more than a year.
Rural demand, meanwhile, remains robust, as visible in the real rural wage growth trends, the brokerage said.
"We believe categories with a high low-unit-packs share, discretionary and impulse (most in food and beverage) will see the highest benefit from GST cuts," HSBC said.
It further added that, "we expect impulse categories like biscuits, salty snacks, and chocolates to see an increase in immediate consumption as these items are consumed via packs rather than absolute quantity. While we see a one-time spurt in volumes in LUP for home and personal care (HPC) categories like soaps, oral care etc., a significant step-up in consumption may not necessarily play out."
The brokerage sees a revival in mass and mid categories and upgraded F&B companies under coverage. "We adjust our earnings estimates as we factor in potential higher volume growth for consumer staples companies on the back of the GST cut."
