Consumer: Further sequential slowdown in Pizza cuisine

17 Aug 2023 , 10:44 AM

In the 13th edition of IIFL Capital Services “Quirks of the Quarter” series, analysts of IIFL Capital Services explore 11 themes ranging from sectoral topics within QSR, oral care, hair oils, soaps and company-specific issues in United Spirits, Page, Tata Consumer, Emami, VBL, among others. 

1. Further sequential slowdown in Pizza cuisine: Even though YoY trends in SSS growth in Pizza cuisine seem to suggest that demand has stabilised, the sequential growth in sales per store is still below the pre-Covid trends. This implies a further slowdown in pizza category and downgrade risks to estimates, unless there is a meaningful demand pickup from the current levels. 

2. United Spirits – is sales growth as good as it looks? United Spirits reported a 17% sales growth in Q1FY24, with P&A growing at 21%. While prima facie this is a robust performance, analysts of IIFL Capital Services explore other angles such as 4yr Cagr and sequential trends that imply that the performance looks subdued with possible downside risks to their estimates. 

3. Sudden acceleration in oral care: A largely staple and well penetrated category such as oral care, has witnessed an acceleration in growth rate with all major players – Colgate, Dabur and HUL reporting double-digit growth in Q1FY24. Analysts of IIFL Capital Services explore the possible reasons for this acceleration and its sustainability. 

4. Page Industries – No pickup in sight: Page Industries reported a 30% increase in volumes QoQ (11.5% decline YoY) which suggests a pickup in recent times. However, growth is in line with Page’s historical seasonality and the recent ARS implementation. Further, there could be downside risks to estimates, unless growth materially picks up from hereon. 

5. Tata Consumer – impact of new businesses on margins: Tata Consumer’s Ebitda margin (14.6% in Q1FY24) has remained in a narrow range over the years. However, adjusted for the steady increase in the contribution of new businesses, analysts of IIFL Capital Services estimate the Ebitda margin at 16.8%, which is a healthy expansion of ~160bps vs Q1FY20. 

6. Emami – varying seasonality effect: While Emami suffered in Q1FY24 with unseasonal rains impacting its summer portfolio, there was a wide divergence in the performance of its two summer-centric products – Navratna (8% decline) vs Dermicool (9% growth). Analysts of IIFL Capital Services explore the possible reasons for this divergence. 

7. Varun Beverages – NCB decline: Varun Beverages domestic volume growth was just 1% in Q1FY24, impacted by unseasonal rains. However, the non-carbonated beverages portfolio (juices and fruit drinks) witnessed a sharper decline at 11.5%. Analysts of IIFL Capital Services explore the possible reasons of a higher decline in a category, which has a relatively low impulse purchase / out-of-home consumption proportion. 

8. Hair oils – recovering?: Commentaries from companies and Nielsen data suggest of a recovery in the hair oil category. However, performance of different players in the space has been a mixed bag, with no clear or evident signals of recovery. 

9. HUL – on a slippery soap: Both GCPL and HUL have taken price reductions in their soaps portfolio; there is a divergence in their volume performance this quarter, with HUL reporting a low-singledigit volume growth vs GCPL at a high-single-digit volume growth. Analysts of IIFL Capital Services explore the possible reasons for this divergence. 

10. Manyavar – primary to secondary sales: Manyavar reported a sales decline of 4% in Q1FY24, while secondary sales decline was much higher at 15%. The ratio of primary-to-secondary sales has witnessed an increase vs the previous quarter, which can be directly attributed to an acceleration in the retail area addition. 

11. Go Fashion – reduction in inventory was not as sharp: Go Fashion reported a sharp reduction in its inventory days (of sales). However, Analysts of IIFL Capital Services note a peculiarity in the company calculation, adjusted for which, the reduction is not as sharp.