FMCG’s defensive image hit as stocks fall up to 21% in 3 months. Tata Cons, Marico among top 10 bets

FMCG’s reputation as a defensive sector has received some serious hammering with stocks falling by up to 21% in the last three months amid muted Q2FY25 earnings, nagging inflation and slowdown in demand. Experts recommend caution going ahead as they pick their top stocks to buy.

At the index level, Nifty FMCG has declined nearly 10% versus 3% correction in Nifty in the last three months. Eleven stocks in the Nifty FMCG index have fallen between 21% and 2% with Colgate Palmolive (India) and Tata Consumer Products among the biggest losers. Dabur India, Britannia Industries, Godrej Consumer Products (GCPL), Hindustan Unilever (HUL), Nestle India, ITC, Procter & Gamble Hygiene and Health Care, United Breweries and Marico are other losers.

Among the gainers are Balrampur Chini Mills, Varun Beverages (VBL), United Spirits and Radico Khaitan which have gained between 1% and 18%.

Q2FY25 earnings

The July-September quarter earnings for the consumption pack was mixed. The average net profit growth of Nifty FMCG companies remained at 2.6% which is lower than the 4% YoY uptick for the Nifty companies.

Radico Khaitan, United Breweries, Varun Beverages, Marico, Colgate-Palmolive (India) and GCPL delivered double-digit profit after tax (PAT) growth between 33% and 14%. Meanwhile, P&G Hygiene, Tata Consumer, United Spirits and ITC witnessed a marginal uptick in their Q2 net profits between 0.57% and 1.82%. The laggards include Balrampur Chini, Dabur, Britannia, HUL and Nestle which have seen their PAT go down between 0.54% and 63%. As for the revenue, Balrampur Chini, Dabur, United Spirits and P&G Hygiene reported declines between 0.21% and 16%. The rest reported a growth between 25% and 1.3% — VBL having the highest topline increase while Nestle, the lowest.

In its brokerage note, SBI Securities called sales and profit growth of consumer staple companies “muted” on the back of moderation in urban pockets even as the rural FMCG market continued to see gradual recovery.

The brokerage analysed revenue and PAT of 44 companies with market capitalisation of Rs 500 crore or more and found that the aggregate sales recorded by them stood at Rs 1,32,434 crore in Q2, which was a 6.2% uptick over the corresponding quarter of the previous financial year. The net profit growth stood at 3% YoY to Rs 15,527 crore.

Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) for the July-September quarter recorded 4.6% YoY growth at Rs 22,433 crore. The EBITDA margin of the pack dipped by 27 bps YoY to 16.9%.

Liquor companies reported good performance overall led by Allied Blenders & Distillers, Radico Khaitan and United Breweries. “A sample of 8 liquor companies with market cap of Rs 500 crore and above reported revenue/EBITDA/PAT growth of 6.4%/13.9%/11.5% YoY at Rs 19,536 crore/Rs 1,120 crore/Rs 661 crore respectively,” the brokerage said.

Antique Stock Broking has moderated FMCG weightage by 150 bps given the recent demand moderation, especially on the urban side. Its FMCG universe delivered in-line 2QFY25 revenue performance while profitability was below its expectations. “Overall, most companies witnessed a marginal sequential improvement in rural markets, while metro cities witnessed significant slowdown as inflation is impacting consumption,” a brokerage note said.

What charts suggest?

Decoding the charts, expert Nilesh Jain, who is Head Vice President, Equity Research Technical and Derivatives at Centrum Broking informed that the Nifty FMCG index is witnessing some rebound from the oversold territory. He placed the immediate support at 55,500 and resistance at 58,700, a follow-up move towards the resistance zone.

Top 10 stocks to buy

SBI Securities puts its money on GCPL, Tata Consumer, Marico in the consumer staple space while recommending liquor stocks like Allied Blenders, United Spirits, Sula Vineyards and Radico Khaitan from a long term perspective.

Antique’s stocks to buy are GCPL, Marico, Radico Khaitan and United Spirits.

Motilal Oswal has a buy view on Dabur, Emami, GCPL, HUL, ITC, LT Foods, Marico and Tata Consumer while Neutral on Nestle, United Spirits, United breweries.

Anand Rathi takes a buy view on HUL under the new leadership of MD & CEO Rohit Jawa. It sees the company poised for double-digit growth.

Jain of Centrum Broking picked just one stock as his buy recommendation viz. Tata Consumer. The stock is witnessing a pullback from the oversold territory and one could see a follow-up move towards 1,000/1,030 levels, he said, placing the support at Rs 910.

Also Read: Auto OEM’s Q2 earnings outpace India’s Jul-Sep GDP, but why are stocks still lacking vigour?

(Data Inputs by Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)