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Quick Pointers

* Staples has seen improvement in demand QoQ.

* Good demand and inventory stocking boosted volumes for paints, however margin outlook remains uncertain.

* Jewellery continue to see robust value growth led by wedding season.

We estimate our coverage universe to report Sales, EBIDTA, PAT growth of 14%/10.1% and 8.3% respectively on 66bps YoY EBIDTA margin contraction. QoQ demand improved steadily amidst domestic macro tailwinds as benefits of GST rate transition. Staples coverage universe will post a growth of 8.5%/6.1% YoY in sales/EBIDTA respectively.  QSR will report an increase of 8.4% in sales and 8.5% in Post IND AS EBIDTA. Retail shows a 27.1% increase in sales and 27.9% growth in EBIDTA led by strong growth in Jewellery segment. Paints will show 7.3% increase in sales and 13% growth in EBIDTA on 91bps margin expansion. 

We expect a steady recovery in the staples demand during 4Q; however, unseasonal rains in select geographies have put pressure on select categories. QSR demand remained uneven, with demand picking up initially driven by Cricket World Cup, LPG supply constraints resulted in loss of sales and menu curtailments in March26. The jewellery segment continued to deliver strong value growth in 4Q led by 82% higher gold prices YoY; while the quarter began on a softer note, demand improved meaningfully with strong buyer growth as gold prices corrected ~17% from peak levels. Paints segment reported steady demand, led by wedding season tailwinds and year end stocking in anticipation of price hikes. Meanwhile, food and grocery retail remained intensely competitive, particularly in urban markets, amid continued expansion by existing and new quick commerce players. Footwear demand remained steady, although inflation is likely to impact on product pricing in coming quarters.

We believe rise in inflation and expected spike in input costs are key factors to watch out for in coming quarters as full impact of crude price spike and El Nino plays out on demand and margins in coming quarters.

We have upgraded Metro brands to Accumulate from Hold as the footwear replacement cycle is likely to play out over the coming quarters, supporting demand recovery. Further, the recent stock correction has improved the risk–reward profile at current valuations. We estimate ~18.8%/15.5% EPS/Revenue CAGR over FY26–FY28 and arrive at TP of Rs1156 (Rs1181 earlier)

We rate Titan Company and Britannia as top picks in consumer universe. We are also constructive on Marico, Metro Brands and Pidilite. 

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