Top Stock Picks: HDFC Securities Recommends These Consumer Discretionary Stocks To Watch Now

HDFC Securities is keeping a watch on the Consumer Discretionary category and has selected Kansai Nerolac as its top recommendation with a buy rating for a target price of Rs 630 prior to its Q4 results.

As per the brokerage "Our discretionary universe is expected to clock 11/2% revenue/EBITDA growth YoY (partly impacted by Omicron) in Q4FY22 (three-year revenue/EBITDA CAGRs of 15/17% respectively). F&G, jewellery, paints, apparel, and footwear are expected to clock 21%, 16%, 14%, 6%, and -2% (three-year CAGRs). Ticket sizes in retail, though normalising, remain elevated from pre-COVID levels; footfalls are yet to catch up."

"While profitability is recovering across categories, (1) high commodity prices, (2) restoration of rent/other SG&A overheads coupled with intermittent demand disruptions are likely to keep margins (ex-jewellery) under pressure. We bake in a 110bps EBITDAM decline for the aggregate universe (12.5%). Apparel, footwear, and paints are likely to feel the heat more vis-à-vis other categories. Store additions have picked up across retail categories," the brokerage has said.

As per HDFC Securities "Value chain checks suggest the following: (1) in F&G, international e-tailers, Reliance Retail, and quick commerce players have been improving their assortment availability and pricing mechanisms. Hence, competitive intensity would be a key monitorable for strong offline incumbents; (2) market share gains towards strong operators is more pronounced in jewellery and paints."

"While our revenue/EBITDA growth expectations over FY19-24 and steady-state return profiles have not changed materially, the dislocation between value and price within the discretionary pack remains wide (most trade between 50-200x FY24 P/E). Any disappointment in demand recovery, courtesy rampant inflation, and a negative margin surprise could hurt the performances of stocks," HDFC Securities has claimed.

Consumer Discretionary Stocks To Watch - HDFC Securities