Buy HUL, Asian Paints: Emkay Global

Emkay Global Financial Services has maintained its buy rating on Hindustan Unilever and Asian Paints and its accumulate rating on Godrej Consumer Products and Marico with price targets of Rs 305, Rs 1000, Rs 127 and Rs 60 respectively, in its March 20, 2009 research report.

“With steep decline in input cost index and reduction in peak excise duty coupled with selective pricing strategy, consumer staples are resting on net savings quantified at Rs 7.5 billion, Rs 1.0 billion, Rs 0.7 billion and Rs 0.7 billion for Hindustan Unilever (HUL), Asian Paints (APL), Godrej Consumer Products (GCPL) and Marico respectively. This translates into additional margins of 4.1%, 1.7%, 4.6% and 2.7% for HUL, APL, GCPL and Marico respectively. In terms of pricing action, it translates into incremental price reductions of 4.3%, 1.7%, 4.8% and 2.9% for HUL, APL, GCPL and Marico respectively. However, we do not expect entire net savings to translate into price reductions owing to buoyancy in rural markets and strong growth momentum in key product categories.”

“We expect net savings to be effectively utilized by consumer staple companies to manage volume growth and market share. We reiterate our positive bias on the sector as mentioned in ‘Drawing Parallels’ that consumer staples are bracing for strong earnings growth and possible earnings surprises in H1FY10E. We maintain ‘BUY’ rating on HUL and APL and ‘ACCUMULATE’ rating on GCPL and Marico with price targets of Rs 305, Rs 1000, Rs 127 and Rs 60 respectively,” says Emkay Global Financial Services’ research report.

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