Consumer Staples & Discretionary Sector Update : Beneath The Surface (BTS) By ICICI Securities
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This is NOT a template-based results review report (of aggregate performance, charts et al). This is a portfolio manager summary of the under-appreciated, yet very important takeaways from the 1QFY24 results season on consumption (Staples, Retail, Paints, Jewellery, Building Materials, Durables, etc.). We decipher management comments and add the layer of our views. Preferred picks: Large caps: Nestle, GCPL Midcaps: Jubilant Food, Kalyan Jewellers, Jyothy, Go Fashion, Emami Avoid: Paints
Unmissable read-through from 1QFY24
Aditya Birla Fashion and Retail (ABFRL)
ABFRL’s escalating losses in most of the emerging businesses (17% negative impact on consolidated EBITDA) continue to be an area of concern, while Lifestyle brand maintains its steady march. Pantaloons fails to inspire confidence on most of the key metrics. Impact of sector slowdown on ABFRL’s earnings may be more pronounced given its leveraged balance sheet.
Akzo Nobel
Re-appointment of Mr. Rajiv Rajgopal and Managing Director for a period of five years is structurally positive as it will ensure continuity for most projects initiated by Rajiv in past five years. A&P spend, which was down to 1.8% of sales in the covid period, is likely to increase to 3.5-4% going ahead. Higher ad-spend is extremely crucial considering Akzo is in premium paints. So the onus to create market also partially rests with Akzo. Higher ad-spend could also potentially provide cover against any steep competitive pressures. The industrial coating portfolio is outperforming Decoratives. Considering revival in capex, infrastructure, real estate segments in India, we believe Industrial paints can emerge as a strong value generator.
Arvind Fashion
Arvind Fashion’s spotlight focus on profitability over revenue growth is positive. Relative success in category extensions (kids wear, innerwear, footwear) instils confidence in brand power (especially of the US Polo brand).
Asian Paints
The B2B portfolio (Industrial paints and Projects) has reported double-digit revenue growth. While Asian Paints has stated its objective of 18-20% EBITDA margin, its FY24 EBITDA margin is likely to be above this range. Aggressive distribution expansion programs of Asian Paints: It has reach of ~1,60,000 retail touchpoints (added 6,000 retail touchpoints in Q1FY24).
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