The firm has identified Varun Beverages, Hindustan Unilever, and Asian Paints as its top contra bets for the next 12 months, betting that these battered stocks have hit rock bottom with limited downside but “meaningful upside in case of a turn.”
Consumer-facing stocks have been in free fall, with some plummeting as much as 25-30% from their peaks as a perfect storm of challenges battered the sector. The pain has been particularly acute as companies grappled with subdued demand that first hit rural areas before urban consumption also began showing signs of moderation.
“Several consumer firms have faced severe issues in the past few quarters on growth, competition & margins which weighed on the share prices,” Jefferies noted. “We see a gradual improvement in some of the issues (demand, margin, etc.) even while others (competition) may persist.”
Varun Beverages: Summer of Discontent
The beverage giant has been caught in a double whammy – increased competition from Reliance’s Campa Cola launch coinciding with a weak summer season. Despite requiring 9-10% EPS cuts, Jefferies upgraded the stock to Buy with a revised price target of Rs 560.
At current levels, the stock trades at 27x EV/Ebitda and 43x P/E on June 2026 basis, which the brokerage finds “attractive” given the battering it has taken.
Asian Paints: Birla Opus Pressure Cooker
The paint major has been under severe pressure from Grasim’s Birla Opus assault, hitting the company at a time when industry growth rates softened and management changes added to the uncertainty. High input cost volatility further complicated matters.
Jefferies upgraded Asian Paints to Buy from Underperform with a revised price target of Rs 2,830, betting on “a gradual recovery in earnings starting FY26.”
“While Birla Opus will continue to ramp-up, we believe that the easy gains are already captured,” the brokerage said.
HUL: Five Years of Flatlined Performance
Hindustan Unilever has perhaps suffered the most, with its stock price staying flat for five years due to weak earnings trends. The FMCG giant has struggled across multiple fronts – from demand weakness to competitive pressures.
However, Jefferies retained its Buy rating with a price target of Rs 2,950, citing “the recent change in stance by management on prioritising growth over margins along with parent’s high focus on India should set the stage for recovery.”
The Contrarian Thesis
The brokerage’s contrarian call comes as the sector battles multiple headwinds. Price hikes have been inadequate, mix deterioration has hit revenues as premium product sales slowed, and companies increased value packs and low-priced SKUs. Trade spends and promotions, including discounts and visibility spends, have ramped up across categories.
Margin pressure has been widespread, with high volatility in key inputs forcing some players to adopt a wait-and-watch approach, particularly impacting gross margins.
“We do highlight that none of the above names are cheap by any stretch of imagination, but we see a potential for a cyclical upturn in the fundamentals, which should drive up share price,” Jefferies cautioned. “And in case our thesis does not play out, we think downside from current levels is limited.”
The brokerage believes that “several stocks factor in these risks, and we see limited downside but a meaningful upside in case of a turn,” making these three names the “best contra 12M ideas” in the consumer space.
