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Maharashtra lockdown likely to be a blip

* The lockdown imposed by the Maharashtra government due to surging Covid-19 infections will be a short-term negative and may affect Q1FY22 performance of our discretionary universe. While there is still some uncertainty regarding the restrictions on trade, we expect fashion/jewelry retail, alcobev, paints and QSR to be the most impacted verticals. Staples, excluding ITC, will be least affected but may see an impact on discretionary/on-the-go consumption and institutional sales.

* Maharashtra accounts for a sizeable share of turnover across our universe – 5-10% for alcobev/paints and 15-40% for Retail/QSR. Besides, the June quarter has a larger share of revenue for some companies, particularly UBBL, VBL and PAG (30%-40%).

* Within Retail, WLDL has the highest exposure to Maharashtra at over 40%, followed by JUBI, TTAN and SHOP with 15-20% exposure. The impact on QSRs, though, could be lesser due to delivery sales.

* Within Alcobev, UBBL has a sizeable 12% revenue share from Maharashtra, with Q1 being the peak quarter. Revenue/profit contribution is higher in Q1 at 30%/40%. While Q1 is also big for VBL – revenue/profit share of 40%/87%, the Maharashtra impact is likely to be marginal, given the low sales contribution at 5% with 60% being on-the-go consumption.

* Besides Staples, RDCK and BRGR are expected to be the least impacted in our universe due to a lower share of revenues (~4%) from Maharashtra. Food companies (BRIT/NEST) may see a marginal benefit due to higher in-home consumption.

* Assuming loss of sales in Maharashtra till April 30, the overall impact on sales is likely to be 2-5% in Q1 (ex WLDL) and even lesser in FY22. For paints and TTAN pent-up demand may offset the impact partially on reopening. Though overall impact does not appear to be significant, risks from further lockdowns remain and may have a bigger impact.

* However, considering the stronger pace of recovery in the consumer space post the full lockdown of Apr’20 and the increased pace of vaccination, we believe that the impact of this lockdown should be short-lived and companies should bounce back faster. We remain bullish on Alcobev (RDCK/UBBL/UNSP), QSR (JUBIWLDL) and TTAN, and believe that correction should be seen as an attractive entry point into these names.

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