Consumer Staples Q4 Results Preview: Subdued Demand Persists; Margins To Improve, Says Systematix

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Systematix Report

Overall, we expect better revenue growth from Marico, Tata Consumer Products, Britannia and Nestle but soft growth from Colgate, Dabur, HUL and paint names. We expect better operating profit margin expansion from Berger Paints while Colgate, Tata Consumer, ITC and paints would lag.

Stock picks: With valuations still lower versus historical long-period averages, but stocks recovering some ground over the past few weeks, we prefer stocks with-

1. pricing power in key categories,

2. potential to gain market share from small/local players, and

3. relatively better growth tailwinds in operating segments.

We prefer Marico and Godrej Consumer Products in home and personal care, Tata Consumer and Britannia in foods, Berger Paints in paints and Dodla Dairy in small/ midcaps.

Looking ahead, sustained rural demand recovery, ongoing distribution expansion from most companies, and rebound in summer-relevant categories, partly offset by lingering weakness in urban demand, would translate into moderate volume growth near-term.

We believe margins can improve in coming quarters as the gap versus inflation narrows and operating leverage improves with some demand recovery.

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