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Consumer 1QFY26 review: Some green shoots in urban demand

Key highlights of 1QFY26: (1) Staples–qoq improvement in value/volume growth for select names, aided by gradual recovery in demand. HUVR/ITC called out early signs of recovery in urban demand. Elevated RM prices and adverse operating leverage impacted profitability, and (2) Discretionary—sustained weakness and weak summer-impacted paints and CSD. Mixed trends in QSR/footwear. Resilient print in jewelry, cigarettes, and alcobev.

Staples—gradual growth recovery; elevated RM prices weigh on margins

Revenue growth (yoy) improved sequentially for most names on expected lines, led by marginal recovery in demand. Overall revenue growth at ~6.5% yoy was aided by positive pricing and slightly better volume growth trend, aided by resilient rural demand and stable-to-marginally-better urban demand. HUVR and ITC witnessed some green shoots in urban demand. Domestic value (organic, LFL)/volume growth: MRCO (27%/9%), TCPL (9.8%/6.8%), BRIT (8.8%/2%), GCPL (7.7%/5%), HONASA (7.4%/10.5%), NEST (5.5%/3%), HUVR (3.8%/3%), DABUR ((-)1.8%/(-)1%) and CLGT ((-)4.2%/(-)4%). Staples GM declined 295 bps yoy, owing to consumption of high-cost RM inventory (tea, palm, copra, etc.). GM decline and adverse operating leverage led to 170 bps yoy EBITDA margin decline, partly offset by cut on A&P spends (down 85 bps yoy).

Discretionary—weak trends across the board, except for TTAN and JUBI

Paints: Value/volume growth (deco business) of APNT was weak but improved sequentially ((-)1.3%/+3.9%); BRGR (~2%/5.6%) was relatively better; KNPL ((-)3%/flat) and INDIGOPN (0.3%/NA) were weak. Topline growth was impacted by continued subdued demand and higher competitive intensity (Birla Opus’ exit market share at HSD in 1Q), and weak mix. PIDI’s 10.6%/9.9% value/volume growth (standalone) was resilient despite consumption weakness and unseasonal rains. Adverse leverage continued to weigh on EBITDA yoy growth for paint names.

QSR and footwear: QSR players witnessed mixed trends. (1) JUBI (Domino’s) stood out with 17.7%/11.6% yoy sales/LFL growth. EBITDA/PAT growth were strong at 16.2%/~30%; (2) WESTLIFE/BK India: 6.7%/12.6% yoy revenue growth, led by 0.5%/ 2.6% SSSG; (3) DEVYANI/SAPPHIRE: (-)0.7%/flat SSSG for KFC (qoq improvement) and 4%/8% SSS decline for PH was weak. Subdued ADS, additional promotional spends, and adverse operating leverage weighed on margins; (4) in footwear, Metro revenue growth was steady at ~9% yoy; Campus was weak at 1.2% yoy.

Jewelry, cigarettes, beverages: (1) TTAN’s domestic jewelry sales growth at 16.6% yoy was led by plain gold jewelry/coins; adjusted EBIT margin was flat yoy at 11.3%, despite multiple margin headwinds, driven by calibrated schemes and operational efficiencies, (2) ITC’s cigarette volume growth was resilient at 6.5% yoy, but EBIT growth at 3.7% was impacted by RM inflation, (3) UNSP’s P&A’s volume/value growth at 9%/9% yoy was aided by AP market tailwinds; UBBL’s volume/value growth at 11%/15.7% was aided by weak base and market share gains, (4) VBL’s domestic performance was weak (7% volume decline), due to early onset of monsoon; international was strong (15% volume growth) aided by growth across markets, (5) Cello’s revenue grew 5.7% yoy, impacted by weakness in writing instruments, and (6) IGIL revenue/PAT grew 15.7%/62.5% yoy.

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