‘Modern retail trade will bounce back as normalcy returns' -- that is the word from Sanjiv Mehta, CMD, Hindustan Unilever (HUL), who also expects the focus on health and hygiene to remain, even when things normalise. In an exclusive conversation with CNBC-TV18, the HUL chief also expressed confidence that rural India will continue to outpace urban India on the growth front.

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On HUL, Abneesh Roy, executive vice president-Institutional Equities at Edelweiss Securities, said, “Most of the frontline consumer stocks would bounce back very strongly. There are four reasons. So, first is that sector rotation is happening. If you see Q1 results, most of the frontline FMCG stocks, either exceeded expectations or were in line with expectations, in contrast with one research agency, which was doing the survey, they were saying that there will be a drop of 20-30 percent in terms of volumes, and then every company saw very good volume growth even on a two-year basis. So, that is one very important point. The next point is that many raw materials have started coming off. So, if you see tea prices, they corrected 30 percent quarter-on-quarter (QoQ), which clearly helps Unilever in its large portfolio of tea. And finally, most of the companies have taken good price hikes. So I expect HUL to see 4-5 percent price hike back in Q2 on a year-on-year (YoY) basis, which is a very good number.”

He added, “FY22 will be a healthy balance of volume and price growth. As out-of-home consumption comes back, as malls start functioning, cinema halls also have started, I would expect this discretionary portfolio to do really well for HUL and most of the frontline FMCG companies. So, we are quite positive on the space, we think that the rally is midway currently, and in the next one year, we do expect that most of these can still give 10 to 15 percent return from here also.”

On Tata Consumer, Roy said, “For Tata Consumer, valuation comfort is not there currently, as you rightly said. What is driving the stock is essentially three things - it is much less diversified versus HUL, so, any cut in tea prices is very good for Tata Consumer and they are seeing a huge margin compression in the last two-three quarters, which will start reversing from Q2 and you should see very good margin expansion at least from a sequential basis.”

“Second, of course, all this BigBasket merger and the acquisition at the group level, clearly will benefit Tata Consumer. They will be launching a lot of direct-to-consumer (D2C) digital-first brands that is also very positive. Having said that, at the current juncture, we will prefer HUL over Tata Consumer.”

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(Edited by : Dipika)