Consumer Staples: 4QFY25E preview - continued weakness in urban consumption by Kotak Institutional Equities
4QFY25E preview: continued weakness in urban consumption
We expect (1) staples to report stable but soft volume growth, impacted by persistent weakness in urban demand; margin pressure owing to RM inflation and adverse operating leverage and (2) discretionary—strong growth in CSD (VBL India), resilient performance of PIDI/cigarettes/alcobev, transient growth moderation in jewelry, and continued weakness in QSRs (ex-Domino’s India) and paints. We expect a good quarter from VBL, PIDI and UNSP; decent topline growth print from JUBI, MRCO, GCPL and TATACONS; and a weak quarter from CLGT, HUVR, QSRs (ex-JUBI) and paints.
Staples—status quo on demand trends; margin decline (yoy) due to RM inflation
We expect stable volume growth trends in the FMCG pack (except acceleration/deceleration at GCPL/CLGT), as the demand environment continues to mirror 3Q trends (subdued urban demand and steady rural growth). Pricing interventions to counter RM inflation would drive modest improvement in the revenue growth trajectory for select names. Within the pack, we expect (1) high-teen value growth for MRCO (17%/19% consolidated/India business), (2) DD growth for TATACONS (11.5%/12.5% organic consolidated/India branded business), (3) HSD for BRIT/GCPL standalone/Honasa (~8%/8%/7%), (4) MSD for NEST (5.4%), DABUR (3.8% standalone) and JYL (4.2%) and (5) LSD/flat for HUVR (2.2% LFL)/CLGT. We expect a margin decline (yoy) across the board due to RM inflation (palm oil, tea, coffee and others) and weak operating leverage.
Discretionary—weakness in QSR (ex-JUBI)/paints; resilience in PIDI/beverages
Paints + PIDI: Decorative paints’ value growth would be muted (4-5%/flat for the industry including/excluding Birla Opus) as demand conditions remain subdued. We estimate a 1% value decline for APNT/KNPL and 3%/flat growth for BRGR/INDIGOPN in decorative paints. APNT’s EBITDA could decline 8% yoy due to adverse operating leverage, whereas BRGR/KNPL could report 20%/8% EBITDA growth (on a weak base). We expect PIDI to report robust 9.5%/10.5% UVG/value growth (standalone), led by 7%/8% UVG/value growth in C&B.
QSR and footwear: QSRs continue to see demand trends similar to 3Q—(1) JUBI sustained growth momentum (9.5%/15.5% yoy LFL/system sales growth at Domino’s India), (2) WESTLIFE/BK India—7.7%/13.3% yoy revenue growth and ~1%/1% SSSG, (3) DIL/SF—6%/2% SSS decline for KFC (DIL/SF) and 1%/2% SSSG for PH (DIL/SF); DIL would report weaker growth metrics relative to SF; the EBITDA margin print in the QSR space is expected to be weak due to GM decline, adverse operating leverage and network expansion and (4) in footwear, we expect CAMPUS/METROBRA to report 8%/10% yoy revenue growth.
Jewelry, cigarettes and beverages: (1) Titan—we estimate 14% standalone recurring jewelry sales growth impacted by a ~16% surge in gold price during 4Q. The EBIT margin is expected to decline 85 bps yoy to 11.2% (~200 bps dip in studded share + surge in gold price), (2) ITC—4.5%/7.0%/3.5% volume/value/EBIT growth in cigarettes and weak FMCG (+4.5%/(-)30% revenue/EBIT growth), (3) VBL—30% (organic 13.5%)/30%/28% volume/revenue/EBITDA growth, led by 14%/15%/17% volume/revenue/EBITDA growth in India, (4) UNSP—7.5%/12.5% volume/value growth in P&A and 15.4% EBITDA margin, (5) UBBL—4.5%/8% yoy volume/value growth and 8% EBITDA margin and (6) Cello—7% value growth.
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