As per our cost analysis, key raw material prices for home and personal care (HPC) companies and paint companies have declined significantly.
The same cannot be said for FMCGs that use Agri commodities as raw materials. Prices are up across the board - The current price of wheat is around 10% higher, price of sugar has increased by 6%, Palm oil prices have increased by 3.6% while SMP and milk prices have increased by 56% and 2%, respectively, since last year.
Key takeaway:
HPC and paint companies like HUL, Marico, Dabur, Asian Paints and Berger Paints are likely to benefit from raw material prices moving down while higher Agri commodity prices will result in lower margins for companies like Nestle and Britannia.
L&T: Best poised to play emerging infra opportunity #Teji
The Government has allowed the resumption of road construction and government projects related work by providing exemptions under lockdown 2.0 to the infra sector. The decision is important as it will increase the flow of new orders as well as enable fast completion of pending projects. This, in turn, will release stalled capital and pave way for fresh infra investments.
With most of the infra companies reeling under the financial crunch, a company like L&T with a strong balance sheet, cash generation ability, sector/geography diversification and efficient project management track record is likely to benefit the most from the opportunity arising in the sector.
Key takeaway:
Selective relaxation in lockdown could make L&T a strong pick in this sector. The current market negativity is priced into the stock price and the valuation is also at an attractive point. Investors should consider this stock.
Teji Picks of the day
Larsen & Toubro (NSE: LT)
Torrent Pharma (NSE: TORNTPHARM)
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