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Stable 4Q; hopeful for broad-based recovery in FY26

Liquor, jewelry, innerwear categories sustain outperformance

* Our widespread consumer coverage universe, with a combined revenue of INR4.8t and a market cap of INR35t, registered aggregate revenue and EBITDA growth of 8%/3% in 4QFY25 and 8%/2% in FY25. Consumption trends were largely steady in 4Q, with liquor, jewelry and innerwear categories sustaining their outperformance.

* Our coverage includes six segments, out of which all segments, except paint, reported revenue growth. The revenue/EBITDA/APAT performance of all subsegments in 4QFY25: staples +5%/0%/-2%, paint -1%/-8%/-18%, innerwear +11%/+43%/+52%, liquor +12%/+39%/+53%, QSR +11%/+7%/-22%, and jewelry +22%/+28%/+17% YoY.

* In 4QFY25, demand trends remained mixed across categories, broadly same with all other quarters of FY25. Staples saw a slightly better performance QoQ but came in below expectations. Growth was dragged down by weak urban demand, slow rural recovery, and high commodity inflation (palm oil prices, etc.), which led to grammage reduction. However, companies undertook selective price hikes to mitigate raw material inflation. Volume growth was in the low- to mid-single digits. Paint companies continued to struggle with soft industry demand and rising competitive intensity. AlcoBev segment witnessed healthy growth, supported by premiumization, new product innovations and reentry into Andhra Pradesh. However, UBBL’s growth was impacted by the partial suspension of supply in Telangana and an excise policy change in Telangana. The innerwear segment witnessed muted demand trends for most part of FY25, but encouraging signs of recovery emerged in 2HFY25. Growth was more pronounced in Tier 2 and Tier 3 cities, outperforming metro and Tier 1 markets. PAGE’s secondary sales growth was slightly higher than primary sales growth during the quarter. QSR companies, with a favorable base, saw an uptick in same-store sales growth (SSSG), excluding KFC. However, average daily sales (ADS) remained muted for most brands in dine-in. The revenue gap between dine-in and delivery has narrowed, owing to increased dine-in footfall traffic. Jewelry players maintained healthy revenue growth momentum, led by high gold inflation and store addition.

* Higher commodity costs, especially in agri inputs, and limited price hikes led to gross margin pressure across most categories. EBITDA margins were also impacted by negative operating leverage, though partially offset by cost controls. Innerwear and liquor players saw margin gains, while QSR and paint companies reported margin contraction. Jewelry players have maintained EBITDA margins despite rising gold prices, supported by operating leverage. However, PAT margins were hit by higher finance costs, led by a sharp rise in gold metal loan (GML) rates amid US tariff-related volatility.

* Among our coverage companies, PAGE, MRCO, UNSP, JUBI, RBA, Titan and Kalyan Jewelers were the outliers in 4QFY25, whereas APNT, CLGT, PG, and Devyani underperformed. While signs of a demand recovery were not fully visible, we expect demand to improve gradually in FY26. It will be supported by income tax benefits, interest rate cuts, and a gradual improvement in the macro environment. Companies remain focused on driving volume-led, competitive growth in the near term, prioritizing revenue growth over margin expansion. Our top picks are MRCO, PN Gadgil and RBA.

Performance summary of all categories and key areas to monitor:

* Staples: FMCG demand remained muted in 4QFY25, impacted by persistent weakness in urban consumption and margin pressure from RM inflation and negative operating leverage. Our coverage universe of staples reported 5% revenue growth, while EBITDA was flat and APAT declined 2% YoY (in line with estimates). Volume growth for most companies was limited to low- to midsingle digits, constrained by high prices of palm oil and agri-commodities. This led to grammage cuts and a growing reliance on low-unit price (LUP) packs. Categories such as personal wash were particularly affected by the dual headwinds of high input costs and soft urban demand. While companies undertook selective price hikes to mitigate raw material inflation, insufficient price hikes led to a contraction of 270bp in GM and 130bp in EBITDA margins, partially offset by cost efficiencies. According to NIQ data, FMCG industry posted 11% value growth and 5.1% volume growth, led by rural markets (+8.4% YoY), while urban markets grew by a modest 2.6%. Demand trends are expected to improve gradually, supported by income tax benefits, interest rate cuts, and gradual improvements in the macro environment. In terms of revenue, Marico (+20%) and BRIT (+9%) were outliers.

* Paints: Paint companies continued to face headwinds in 4QFY25, with subdued demand, consumer downtrading, and heightened competitive intensity weighing on overall performance. Our coverage universe (APNT and Indigo Paints) reported a decline of 1%/8%/18% in revenue/EBITDA/APAT. Berger Paints stood out with 7% revenue growth, supported by its urban-centric initiatives and expansion into new product categories. Competitive pressures remained high, with Birla Opus making notable efforts to gain market share. According to Grasim, the combined revenue market share of Birla Opus (including Birla White Putty) has now surpassed ~10%. EBITDA margins for most players declined YoY, impacted by an adverse product mix, prior price reductions, and negative operating leverage.

* Liquor: The AlcoBev sector saw healthy growth in 4QFY25, supported by new innovations 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, 24% for United Breweries, and 17% for Radico Khaitan. Mass/Popular segment also saw a marginal recovery. UBBL’s performance was impacted by a partial suspension in Telangana and duty changes in Karnataka. Raw material costs of ENA and Glass were largely stable in 4Q, leading to margin expansion for companies. The next inflection point is expected in Sep’25, when the government announces its ethanol policy. State policy reforms in UP and Telangana—including UP’s new excise policy with e-lottery and composite shops (Beer and foreign liquor) and Telangana’s 15% beer price hike—are set to improve market efficiency and pricing power. 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 12%/39%/53% during 4Q.

* QSR: With a persistent urban slowdown and higher competition, QSR companies’ performance remained muted. Eating-out frequency largely remained unchanged in 4QFY25. Companies expect a gradual recovery in eatout frequency. With a favorable base, SSSG saw an uptick (excl. KFC). The revenue gap between dine-in and delivery has narrowed, driven by increased dine-in footfall traffic. However, 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 footfalls. While delivery channels remain strong, dinein is showing a gradual improvement. Our coverage universe posted revenue growth of 11% YoY (organic growth) in 4QFY25 vs. 12% in 3QFY25 and 8% in 4QFY24. KFC was partly impacted by bird flu in the Southern region. Store additions continued at a healthy pace during the quarter. Jubilant and RBA outperformed in 4QFY25.

* Jewelry: Jewelry companies reported strong sales growth in 4QFY25, driven primarily by an increase in the average ticket size due to higher gold prices. The Akshaya Tritiya festival witnessed robust demand. Revenue growth for Titan (Jewelry standalone, ex-bullion), Kalyan, Senco, and P N Gadgil (retail) stood at 25%, 37%, 21%, and 50%, respectively. SSSG came in at 15% for Titan, 21% for Kalyan, and 18% for Senco. There was an improvement in the studded jewelry mix for Kalyan, Senco, and PN Gadgil, while Titan saw a decline. High gold prices dampened demand in the sub-INR50k price segment, with consumers opting for lower caratage and lightweight jewelry to manage overall costs. In response, companies are increasingly focusing on launching new lightweight collections. Despite rising gold prices, companies managed to sustain EBITDA margins through operating leverage benefits. However, PAT margins were impacted by a significant increase in finance costs, primarily driven by higher interest rates on GML amid US tariff-related volatility. GML rates more than doubled YoY in 4Q but have recently begun to stabilize. Our coverage jewelry companies delivered sales/EBITDA/PAT growth of 22%/28%/17% in 4QFY25.

* Innerwear: The innerwear category reported double-digit growth during the quarter, supported by steady investments in product innovation, brand marketing, and distribution expansion. Among key players, PAGE posted 11% revenue growth, Lux Industries 16%, and Dollar Industries 10%, while Rupa reported modest 5% growth. E-commerce and Tier-3/4 cities led growth, followed by Tier-1, Tier-2, and metros. Inventory management has improved, with PAGE witnessing slightly higher secondary sales compared to primary sales, indicating healthy offtake at the retail level. EBITDA margins expanded during the quarter, supported by stable raw material prices, improved inventory efficiency, and operational gains. PAGE delivered 8%/23%/28% YoY growth in revenue/EBITDA/APAT in FY25.  

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