The December quarter should bring a lot of respite, as the pace of recovery is expected to be much faster for consumer discretionary firms such as Titan Co. Ltd, Page Industries Ltd and paint companies
Consumer staples firms have been relatively better off during the pandemic, barring initial disruptions owing to the covid-19 lockdown restrictions. Therefore, when these companies announce their December quarter results, revenue growth is expected to be broadly steady. On the other hand, consumer discretionary firms had suffered more, as Indians spending more time indoors to protect themselves from the virus, curbed their discretionary purchases. In this context, the December quarter should bring a lot of respite, as the pace of recovery is expected to be much faster for consumer discretionary firms such as Titan Co. Ltd, Page Industries Ltd and paint companies.
Analysts from JM Financial Institutional Securities Ltd said in a report on 8 January, “Discretionaries that were worst impacted during the lockdown are witnessing a sharp recovery and we now forecast aggregate growth of +8% for the December quarter." This is based on the brokerage firm’s coverage universe. Here, JM Financial expects growth to be led by Titan (+12% excluding bullion) and paints companies (12-13% growth). In its recent update, Titan said its jewellery business recorded close to 15% year-on-year growth (excluding sale of raw gold worth) in the December quarter. Jewellery segment is Titan’s mainstay and contributed an enormous 83% of its FY20 revenue. Kotak Institutional Equities expects Page Industries’ to record 15% topline growth and witness strong margin expansion.
For consumer staple firms, the December quarter is likely to be stable. Kotak’s analysts said in a report on 8 January, “Staples companies will see steady growth albeit with some moderation in health, hygiene and packaged foods categories." Recall that Britannia Industries Ltd had benefitted substantially from the increase in at-home consumption in the first half of financial year 2021. These tailwinds are expected to moderate now. Analysts expect Hindustan Unilever Ltd to clock an organic sales growth of around 6%.
“Tata Consumer Products Ltd should lead the pack with 24% growth (tea price increase led) in the India business followed by Dabur India Ltd (14%), Marico Ltd (11%), Godrej Consumer Products Ltd (11%), Nestle India Ltd (11%), ITC Ltd’s - FMCG business (10%) and Britannia (10%)," pointed out Kotak. On the profitability front, the brokerage firm expects Ebitda margin expansion on a year-on-year basis partly aided by cost savings. Ebitda is earnings before interest, tax, depreciation and amortization.
Overall, rural demand is expected to have panned out better than urban during the December quarter. Additionally, strong festival season demand for some companies and pent-up purchases should also help performance. Investors should also watch for management commentary on demand trends when companies announce their results.
Meanwhile, stocks of some consumer companies such as Titan, Tata Consumer and Asian Paints have outperformed broader markets over the last one year. Needless to say, any disappointment on earnings expectations may come as a reality check for investors.