Consumer Outlook CY24

14 Dec 2023 , 11:56 AM

Analysts of IIFL Capital Services negative call for the QSR sector played well in CY23; they are upgrading the sector now. Although returns may be backended, it is difficult to time these calls finely. FMCG demand is quite subdued currently. Analysts of IIFL Capital Services expect a modest recovery, which could drive some share price upside; however, growth for many companies could still be uninspiring and it is better to pick relatively higher-growth companies here. On Paints, although analysts of IIFL Capital Services maintain their REDUCE rating, the stance is more neutral, given that at least some fear of new competition is built in. In Apparels, they expect Covid-led cyclicality to stabilise and growth to return to normal levels. Analysts of IIFL Capital Services top picks are GCPL, VBL, Mrs Bectors. Westlife, Sapphire, Trent, Shoppers Stop, Nykaa. 

FMCG – modest recovery likely: 

Demand is currently quite subdued with companies reporting low-single-digit sales/volume growth. Analysts of IIFL Capital Services expect volume growth to pick up and pricing to also turn positive, thereby driving high-single-digit sales growth. This recovery is likely to drive low-double-digit stock returns; however, given the options available in the market, analysts of IIFL Capital Services do not expect much sustained enthusiasm for this kind of growth. They would like to stick to companies that can deliver strong bottom-line growth. Analysts of IIFL Capital Services large-cap top picks are GCPL, VBL, United Sprits and mid/small cap are Mrs Bectors, Bikaji and Sula. 

QSR – upgrading the sector: 

This year, analysts of IIFL Capital Services had a negative call on QSR which has played out well in terms of fundamentals as well as relative stock performance. They believe that they are ~70% through the downgrade cycle and that YoY growths will start looking good lapping a low base. Moreover, with food and general inflation moderating, at some point they are likely to see a revival in consumption. While it seems that QSR is more a H2CY24 story and weakness till then if any are buying opportunities, it is not possible to time the recovery exactly. Analysts of IIFL Capital Services upgrade Jubilant to ADD, Sapphire, WLDL and Devyani to BUY and maintain BBQ Nation at ADD. 

Apparels: 

While FY24 is expected to be a sub-par year for the sector given the overall inflationary pressure, delay in value fashion demand pickup and increased competition, analysts of IIFL Capital Services expect growth from FY25 to revert to normal levels for the sector. Analysts of IIFL Capital Services forecast aggregate revenue growth to accelerate to 15%/14% in FY25/26, contingent on a supportive macro. A delay in recovery could result in earnings downgrades. Trent continues to be an outlier in this space and is also their top pick. Analysts of IIFL Capital Services also prefer Shoppers Stop, Vedant Fashions, while maintaining their REDUCE call on Page, V-Mart.

Paints: 

Paints growth has come off its highs, and is in line with the overall consumption space now. Margins are high due to drop in input prices, but have a more downside than upside bias from the current levels over the medium term. Therefore, analysts of IIFL Capital Services maintain their cautious stance on the Paints segment. However, analysts of IIFL Capital Services are not overly negative, given that at least some concern on competition may be built into the stock prices. Analysts of IIFL Capital Services expect sideways movement for this sector in CY24. Other sectors / stocks 

• Jewellery (Titan) – analysts of IIFL Capital Services remain positive on the stock for sustained growth momentum; however, look for better entry points given the valuation. 

• Grocery (D-Mart) – analysts of IIFL Capital Services believe that this stock will time-correct given the high valuation (80x FY25) and some constraint to growth from the inability to add stores rapidly. 

• Online retail (Nykaa ie FSN Ecommerce) – analysts of IIFL Capital Services are positive on the stock given FY24-26 63% Ebitda Cagr and a possible uplift in BPC growth as consumption revives.