Quirks of Q2FY23 for the consumer sector

18 Nov 2022 , 10:46 AM

Key takeaways are discussed below.

1. Sales growth — Food versus HPC

Aggregate sales growth for food companies in Q2FY23 was 22.2% versus 11.6% in health and personal care (HPC), with the likes of Varun Beverages, Britannia, Nestle all reporting large beats on top line versus IIFL Capital Services’ estimates. Analysts at IIFL Capital Services explore the possible reasons for this divergence between Food versus HPC this quarter.

1. BBQ — Explaining sequential margin contraction

Barbeque Nation’s EBITDA margin contracted from 13.7% in Q1FY23 to 10.0% in Q2FY23. While the increase in pace of new store additions has contributed to margin contraction, the larger drag has come from contraction margins of mature stores, which in turn, is due to seasonally lower sales this quarter.

1. Dabur — managing ad versus promotional spends

Dabur reported a contraction of 346 basis points in gross margin over the year-ago quarter, offset by 209 basis points reduction in ad spends. However, adjusted for promotional spends, which are largely net off from sales, overall ad spends seem to be largely maintained.

1. Alcobev — is there really a huge surge in demand?

United Spirits reported sharp acceleration in 3-year CAGR as well as strong growth sequentially. However, analysts at IIFL Capital Services notice that the growth in Gross Sales (gross of excise duty) – a better proxy to consumer spending – is not up that sharply.

1. Paints — slowdown is now visible

Paint companies surprised negatively on top line growth this quarter, with EBITDA missing IIFL Capital Services’ estimates by a larger amount. While reported volume growth for Asian Paints and Berger was in double digits, analysts at IIFL Capital Services try and derive the volume growth based on the price hikes announced by the companies and the reported top line growth.

1. Capex increases in oldest QSRs

Both Jubilant Foodworks (JUBI) and Westlife Foodworld (WLDL) have announced capex in the medium term, which was higher than IIFL Capital Services’ estimates. While JUBI would be spending towards commissary infrastructure, WLDL would be spending towards EOTF stores, drive-ins, McCafe, among others.

1. Strength in fabric care business

Both HUL and Jyothy Labs reported a buoyant growth in Home Care / Fabric Care verticals respectively, over the year-ago quarter as well as 3-year CAGR.

1. Pizza Hut — Devyani versus Sapphire

Sapphire’s SSS growth in Pizza Hut format was significantly higher versus its counterpart Devyani in Q2FY23. While a favorable base for Sapphire contributed to the outperformance, in terms of YoY SSS growth, ADS growth sequentially has also been slightly higher for Sapphire this quarter.

1. DMart — increase in other expenses per store

Other expenses per store for DMart increased 23% over the year-ago quarter and 12% sequentially, impacting EBITDA margin this quarter. In earlier quirks, analysts at IIFL Capital Services have mentioned how DMart has controlled its other expenses to drive operating margin expansion. We are now probably witnessing the reverse play out.

1. Tea — Tata versus HUL

HUL outperformed Tata Consumer, in terms of volume growth in Tea business this quarter, while both reported market share gains. However, in terms of 3-year CAGR, Tata Consumer’s Tea volume growth continues to be impressive.