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Jewelry and liquor categories sustain outperformance

* Our widespread consumer coverage universe, with a combined revenue of ~INR4,800b and a market cap of ~INR35,000b, registered aggregate revenue and EBITDA growth of 12%/5% in 1QFY26 and 8%/2% in FY25. Consumption trends saw a sequential improvement in 1Q, with jewelry and liquor categories sustaining their outperformance.

* Revenue/EBITDA/APAT performance of all sub-segments in 1QFY26: staples +10%/1%/0%, paint +3%/+2%/+2%, innerwear +3%/+21%/+22%, liquor +16%/+7%/+13%, QSR +11%/+0%/-85%, and jewelry +25%/+47%/+56% YoY.

* In 1QFY26, demand trends were mixed across categories. Staples delivered a slightly better sequential performance, aided by price hikes and improving urban sentiment as inflation eased, while rural demand remained relatively more resilient. Unseasonal rains impacted the summer portfolio, particularly beverages and cool talc. Volume growth for most companies improved sequentially and delivered low- to mid-single digits. Management commentary was also positive regarding volume recovery for the remainder of FY26. Easing inflation, potential rate cuts, tax benefits, and a healthy harvest season are expected to drive volumes. Paint companies showed early signs of recovery, although momentum was impacted by the early monsoon. Still, management sentiment appears more positive compared to a year ago, with the sector posting marginal growth after four quarters of decline. The early festive season (Diwali in mid-October) is expected to drive demand for September but may partially impact 3Q performance. Uncertainty around the overall demand recovery still hovers around the category. The AlcoBev segment sustained healthy demand, driven by premiumization, product innovations, and re-entry into Andhra Pradesh, while UBBL additionally benefited from market share gains and a favorable base. The impact of the sharp tax increase in Maharashtra will be monitorable in the performance of the upcoming quarters. The innerwear category faced soft demand, with subdued consumption patterns affecting tertiary sales. However, companies continued to invest in innovation, marketing, and distribution. The growth recovery toward the end of the quarter was encouraging, making it important to monitor demand recovery during the festive period. QSR players continued to report muted demand despite a supportive base, with dine-in ADS remaining soft and SSSG largely flat to negative, barring JUBI and RBA. Jewelry players reported strong topline growth, aided by high gold prices and store additions. The shift in Gudipadwa days partially impacted 1Q retail performance.

* Gross margin pressure persisted, driven by high-cost commodity inventory, especially in agri inputs, and limited price hikes. While key commodity prices remain volatile month-to-month, they are expected to stabilize in the remainder of FY26. Companies have implemented price hikes, and steady RM costs could provide relief from GM pressure in 2HFY26. EBITDA margin in 1Q was also impacted, though partially offset by cost controls. Innerwear and jewelry players experienced EBITDA margin gains, while staples, QSR, and paint companies reported margin contraction. Jewelry companies witnessed EBITDA margin expansion despite rising gold prices, supported by a superior product mix and a higher studded share.

* Outliers and underperformers in 1QFY26: Among our coverage companies, HMN, PG, PIDI, RDCK, Titan, P N Gadgil, and Kalyan Jewelers were the outliers in 1QFY26, whereas CLGT, NEST, INDIGOPN, UBBL, BARBEQUE, and Devyani underperformed.

* Outlook and recommendation: With sustained improvements in macros and government initiatives to revive demand, we expect a broad-based demand recovery in FY26. Early signs of demand improvement in 1Q have increased our confidence in growth recovery for FY26. We expect both staples and discretionary categories to perform well, particularly where mid-mass income HHs have higher sensitivity to growth. Our top picks are HUL, GCPL, MRCO, PAGE, Titan, PN Gadgil, and RBA.

Performance summary of all categories and key areas to monitor

* Staples: FMCG demand remained stable, showing a gradual sequential improvement backed by favorable macros. The rural market continued to perform well, with urban demand also picking up. Our staple companies reported sales growth of 10% (est. 6%), EBITDA was +1% (est. +1%), and APAT was flat YoY (est. +2%). Volume growth for most companies was limited to lowto mid-single digits. The early onset of the monsoon impacted the summer product portfolio of a few consumer companies (Dabur, Emami). Gross margin continued to contract for most companies in 1QFY26 due to high-cost inventories. In 1Q, margin softness was broad-based across categories but more pronounced in the beauty & personal care segment. For staple companies under our coverage, gross margin contracted 420bp YoY and EBITDA margin contracted 220bp YoY. According to NIQ data, the FMCG industry posted 14% value growth and 6% volume growth, with rural volume growth much higher at 8.4% vs 4.3% in urban areas. However, the gap is narrowing as the urban areas show signs of sequential recovery. Demand trends are expected to improve gradually with improving macros and a healthy monsoon outlook. In terms of revenue, Marico (+23%) and ITC (+17%) were outliers, while Colgate (-4%) came in below expectations.

* Paints: Paint companies in 1QFY26 were partially hit by the early monsoon and an unfavorable product mix amid intense competition in the economy segment. However, the companies are now seeing sequential improvement. Our coverage universe (APNT and Indigo Paints) reported a growth of 3%/2%/2% in revenue/EBITDA/APAT. Berger Paints stood out with 4% revenue growth, supported by its urban-centric initiatives and expansion into new product categories. Grasim stated that as of 1QFY26, Birla Opus maintained a strong 65% revenue share from premium and luxury products across emulsions, enamels, wood finishes, and waterproofing. Raw material prices have softened, especially crude derivatives, but companies are monitoring potential cost increases due to anti-dumping duties on TiO2 from China. EBITDA margins for most players declined YoY, impacted by an adverse product mix and negative operating leverage.

* Liquor: The AlcoBev sector saw healthy growth in 1QFY26, supported by premiumization and re-entry into AP (Since Sep’24). The Prestige & Above (P&A) segment maintained its momentum, with premium volume growth of 9% for

* United Spirits, 46% for United Breweries, and 41% for Radico Khaitan. The Mass/Popular segment saw steady performance. UBBL’s performance was supported by share gains and a low base from the election-impacted quarter last year. In 1QFY26, input costs such as ENA and glass remained largely stable, though margin performance varied across players. United Spirits saw EBITDA margin contraction, led by higher costs. Radico Khaitan posted a healthy 230bp margin expansion to 15.3%, with guidance of 125-150bp annual improvement. Meanwhile, United Breweries faced ~70bp margin pressure, largely due to weakness in Karnataka. Premiumization, regulatory stability, and strong brand momentum support a positive near-term outlook. Radico outperformed its peers in the category. Our coverage liquor companies delivered sales/EBITDA/APAT growth of 16%/7%/13% during 1Q.

* QSR: Consumption trends remained stable, showing no significant improvement or deterioration compared to the last 3-4 quarters. Companies expect a gradual recovery in eat-out frequency. That said, weak underlying growth continued to impact operating margins, exerting pressure on restaurant and EBITDA margins for most brands. Enhancements in value-focused menu offerings and promotional activities have increased footfall. While delivery channels remain strong, dine-in is showing a gradual improvement. Our coverage universe posted revenue growth of 11% YoY in 1QFY26 vs. 8% in 4QFY25 and 5% in 1QFY25. Store additions continued at a healthy pace during the quarter. RBA outperformed in 1QFY26.

* Jewelry: Jewelry companies delivered robust revenue growth despite global headwinds and a sharp rise in gold prices (up 32% YoY and 5% QoQ). Demand was resilient, supported by festive and wedding-related purchases. Revenue growth for Titan (Jewelry standalone, ex-bullion), Kalyan, Senco, and P N Gadgil (retail) stood at 17%, 31%, 30%, and 19%, respectively, while Thangamayil and DP Abhushan grew 16% and 5%. The studded jewelry mix improved for Senco and PN Gadgil, while it remained stable for Kalyan and declined for Titan. Companies noted rising interest in 18k jewelry, along with growing traction for 14k gold among customers in select regions. EBITDA margin expansion was supported by a superior product mix and high-studded share. GML rates, which spiked in the last quarter due to US tariff volatility, have now normalized to the usual 3-4% range. Our coverage jewelry companies delivered sales/EBITDA/PAT growth of 25%/47%/56% in 1QFY26.

* Innerwear: The innerwear market witnessed soft demand trends as consumption patterns in 1Q were subdued, affecting tertiary sales growth. However, the companies continued with their steady investments in product innovation, brand marketing, and distribution expansion. Among key players, PAGE posted 3% revenue growth, Dollar Industries 19%, and Lux Industries 13%, while Rupa reported an 11% decline. E-commerce and Tier-3/4 cities led growth, followed by Tier-1, Tier-2, and metros. Inventory management improved, with PAGE’s inventory days now at normal levels. EBITDA margins expanded during the quarter, supported by stable raw material prices, improved inventory efficiency, and operational gains. PAGE delivered 3%/21%/22% YoY growth in revenue/EBITDA/APAT in 1QFY26.

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