Here are the top performing consumption stocks of 2023 so far

In fact, the middle class is projected to drive 75% of total consumption in India by 2030. No wonder consumption stocks are among the safest stocks in the market today. Most of them have low or no debt, are growing quickly, and have good margins, cash flows and return ratios.

Only five of the 30 stocks in the Nifty Consumption index have had negative returns this year. The top losers include Crompton Greaves (down 11%), Page Industries (down 8%), and Dabur India (down 4%). On the other hand, the top gainers are up as much as 50%.

Let’s take a look at the top five.

1. Trent

First on the list of top-performing consumption stocks is Trent. A subsidiary of the Tata Group, the company operates retail stores under the brand names Westside, Zudio, Star, and Landmark.

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In 2023 so far, shares of Trent are up 54%, making it among the top overvalued stocks in the current market.

At the end of financial year 2023, the company had about 680 stores across 250 cities in India. In FY24 it plans to add over 240 stores with an estimated capex of ₹8 billion.

India is one of the world’s fastest-growing economies and has the largest young population, and Trent plans to capitalise on this growth. The company recently launched ‘Samoh’, a luxury clothing brand, and opened its first store in April 2023. It also plans to open stores of this brand across the country and take the count from one to 10 in a year. Trent has also ventured into emerging sectors such as beauty and personal care, which will help drive top line growth.

Despite strong economic headwinds such as inflation and rising interest rates, the company’s revenue grew by 82.7% in the financial year 2023. Net profit increased tenfold. Growth was primarily led by the company’s expansion plans.

With strong financial performance, a promising expansion plan, and a favourable position within the retail industry, Trent is well-prepared to capitalise on the recovery of discretionary consumption in the Indian market.

2. DLF

Next on the list is DLF. The company is one the leading brands in the Indian real estate sector. It has a vast experience of 75 years in developing residential and commercial projects. It has a strong presence in Gurugram, which is to DLF what Mumbai is to Godrej.

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(In 2023 so far, shares of DLF are up 52%.

The DLF group enjoys a low-cost and fully paid-up land bank, with well-located parcels across multiple cities and having diverse land usages. This in turn provides strong visibility to launches.

In the past five years the company has been reducing its debt dramatically, which is often the main reason why a real estate company shuts shop. At present, its debt-to-equity ratio stands at a respectable 0.1x.

The company is coming off a strong FY23 and it even posted higher-than-expected numbers for the first quarter of FY24. DLF’s net profit of ₹5.3 billion for the quarter ended June 2023 beat estimates and was up from ₹4.7 bn in the same quarter last year. In the past five years, it has delivered a CAGR of 44% on net profit.

Going forward, the company is expected to do well as it has a healthy pipeline of residential project launches, close to ₹200 bn for this financial year.

Some of its launches include a luxury residential project in Gurugram’s DLF 5, a high-rise luxury residential development complex being built in the centre of Chennai, a mid or high-rise in New Gurugram’s Sector 76/77, and a low-rise residential development project in Chandigarh Tri-city.

3. Bajaj Auto

Third on this list is Bajaj Auto. The company is India’s third-largest motorcycle manufacturer, with a 12% market share in two-wheelers (19% in motorcycles). It has a strong presence in the premium motorcycle segment, with a 33% share. Its shares are up 40% so far this year.

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Bajaj Auto has accelerated its sales performance considerably in recent quarters. This is due to an increase in demand in the domestic market.

The Pune-based company also launched two locally made, high-end Triumph motorcycles. The prices of these bikes are considerably higher than the company’s average selling price.

Investor sentiment around Bajaj Auto has also received a boost this year due to falling prices of raw materials such as steel. Raw material costs comprised 67.9% of Bajaj Auto’s operating income in FY23.

Also in FY23 Bajaj Auto formed a 100% subsidiary, Chetak Technology Ltd (CTL), to tap the thriving electric vehicle (EV) market. This subsidiary will develop new EV technologies and products and will have its own dedicated manufacturing facility.

The company’s efforts to capitalise on the booming EV industry seem to be working. Bajaj Auto’s domestic sales of its electric scooter Chetak (re-introduced in 2021) grew over four times to 36,260 units in FY23, from 8,187 in 2022.

On the back of this success, the company plans to extend its distribution network to over 100 cities and invest in expanding its capacity. It also plans to invest over ₹7.5 bn in financial year 2024, a part of which will be spent on removing bottlenecks to ramp-up its EV component volumes.

Bajaj Auto also has a significant international footprint and derives 55% of its volumes and 40% of its value from exports.

It is the largest exporter of three-wheelers and motorcycles from India, and serves over 79 countries in Africa, Latin America, South Asia, and the Middle East.

4. ITC

Fourth on this list is ITC. The company is a diversified conglomerate with businesses spanning fast moving consumer goods, hotels, paperboards and packaging, agri, and IT.

It’s the leading FMCG firm in India and the market leader in the Indian paperboard and packaging industry. It’s acknowledged globally as a pioneer in farmer empowerment through its wide-reaching agri business and also owns a pre-eminent hotel chain in India.

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So far this year, shares of ITC are up around 35%.

Over the past decade, ITC has created an array of strong brands that are either #1 or #2 in their category. No wonder it’s the Indian stock market’s favourite value stock.

After years of underperformance, shares of ITC shot up in 2023 after the company announced plans to demerge its hotel business.

Exiting or demerging the hotels business was a longstanding demand from ITC shareholders. It was gobbling up a lot of capital on account of its capital-intensive nature.

Now that the demerger has finally happened, the company will have more cash to spare, which it can use to pay more dividends or invest in something more productive.

It appears that the company is turning a new leaf and is expected to derive higher revenue from its consumer business in the years to come.

5. Colgate-Palmolive

Last on this list is Colgate-Palmolive. An FMCG company that has maintained its leadership since 1990, Colgate has an over 51% market share in toothpaste, 48% in toothpowder, and 30% in toothbrushes.

Being an FMCG company, Colgate has remained cash rich over the years and has strong cash flows to dole out regular dividends.

In 2023 so far, shares of Colgate have gained 33%.

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In its annual report the company said it’s waiting to capture market share in the oral care category and products under the Palmolive brand. Segments under oral care include floss and mouthwash and have significant headroom to grow in India.

Some impact can already be seen in its first quarter results of FY24 in which it reported revenues of ₹13.1 bn, an increase of 11% from the same quarter last year, and a 30% rise in profit to ₹2.7 bn. The successful execution of its oral care strategy was one key reason for this growth.

Going forward, it plans to increase investments in its core brands and explore new opportunities for growth.

Since you’re interested in consumption stocks, use Equitymaster’s powerful stock screener to find the best consumption stocks in the market.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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Updated: 16 Oct 2023, 11:04 AM IST