Consumer: Quirks of the Quarter Q3FY24

27 Feb 2024 , 11:34 AM

In the 15th edition of analysts of IIFL Capital Services “Quirks of the Quarter” series, they explore eleven themes ranging from sectoral topics such as Zomato vs. QSR, Asian Paints vs. Pidilite, jewellery industry – organized vs. unorganized and also company specific issues in HUL, ITC, Trent, Dabur, Marico, Nykaa, Sula and BBQ Nation. 

1. QSR vs. Zomato: Divergent trends – Contrary to the subdued performance of QSR space in recent quarters, Zomato continues to report healthy numbers in its food delivery business (growth of 27% YoY). Even on a per restaurant basis, there has been considerable divergence between Zomato and the QSR players in recent quarters. 

2. Nykaa fashion – on the right track – Nykaa is reporting healthy increase in its fashion AOV (up 18% YoY) but its NSV to GMV ratio is also falling consistently. Analysts of IIFL Capital Services note that NSV per order is still growing secularly over several quarters, which is a healthy sign for the overall business. 

3. HUL – poor on all parameters: HUL reported a poor Q3FY24, not delivering on any of the vital parameters – volume growth, value growth, operating margin, market share gain. Analysts of IIFL Capital Services find that HUL’s Q3FY24 performance is exceptionally poor on these fronts, compared vs. its own history. 

4. Marico – frequent channel down-stocking: Marico has reported lower primary growth vs. offtake growth for three consecutive quarters. Subdued demand and price deflation has impacted the ROI of Marico’s distributors, and the company has taken corrective steps this quarter, which is likely to re-align primary growth with off-take growth going forward. 

5. Sula – the margin expansion mystery – Sula reported gross margin expansion of 370bps YoY in Q3FY24, despite increased selling and distribution expenses. The mix effect from higher growth in elite and premium wines however, explains only part of this margin expansion. 

6. Volume growth – Asian Paints vs Pidilite: Asian Paints has outperformed Pidilite in terms of reported volume growth. However, adjusted for the negative mix impact in Asian Paints, Pidilite’s performance has been better both in YoY as well as 4 year Cagr terms. 

7. ITC – moderation in volume growth? ITC’s cigarette volumes declined by 1-2% YoY and while absence of channel up-stocking before the annual union budget may have played a part, analysts of IIFL Capital Services explore other possible reasons for the moderation in volumes. 

8. Dabur – A subdued performance in beverages: Dabur’s beverage segment grew 7% YoY and average for Q2 + Q3 (adjusted for festive shift) is a decline of 1.6%. The growth in this portfolio has decelerated significantly from 30% growth reported in FY23. Also, Dabur is underperforming its peer Varun Beverages in this segment. 

9. Trent – gross margin expansion: Trent reported 57bps gross margin expansion in Q3FY24, despite the construct of its top-line growth (53% YoY) being skewed towards the lower margin Zudio format. Gross margin expansion across both Westside and Zudio, driven by moderating cotton prices is likely to be the key reason. 

10. BBQ Nation – Ebitda margin expansion: Despite a poor show in terms of same store sales (a decline of 5% YoY), BBQ Nation reported Ebitda margin expansion of 64bps YoY to 11% in Q3. Analysts of IIFL Capital Services believe that stores closed in M9FY24, which probably had lower sales throughput, are key contributors to the gross margin as well as Ebitda margin expansion, and going forward, SSS growth is likely to be the key lever for further margin expansion. 

11. Jewellery – increased shift towards organised retailers: Organized players in the jewellery sector have been reporting robust performance in recent quarters, ahead of overall jewellery industry. Unlike earlier feared, multiple organized chains are able to scale up without impacting growth of each other.