Festive Cheer Fizzles As Consumer Staples Face Weak Q3, Say Morgan Stanley, Centrum

The festive season failed to deliver a boost for India's consumer sector, as brokerage reports from Morgan Stanley and Centrum suggest muted growth in the third quarter of fiscal 2025.

Urban sluggishness, inflationary pressures, and stiff competition weighed heavily on both staples and discretionary segments, while rural demand showed early signs of recovery, say the brokerages.

Morgan Stanley: Festive Gains Fall Short

Morgan Stanley's report on the consumer sector highlights a mixed bag of performances, with staples showing sequential improvement but failing to inspire confidence in a sustainable recovery.

Staples: While rural growth outpaced urban for key companies, the overall trend remains steady rather than strong. Categories like tea, cocoa, and palm oil benefited from price-led growth, but inflationary pressures are squeezing margins. Marico Ltd. and Tata Consumer Products Ltd. emerged as standouts, driven by strong international trends and positive tea volumes.

Discretionary & Retail: Growth in retail was patchy. DMart posted 17.5% revenue growth, but store expansions lagged. FSN E-Commerce Ventures (Nykaa) and Brainbees (FirstCry) maintained strong momentum, though Nykaa's fashion segment lagged.

Paints: The paints segment was hit hard by weak decorative volume growth and heightened competition. While margins improved sequentially, Berger Paints and Kansai Nerolac outperformed market leader Asian Paints in terms of revenue growth.

Centrum: Rural Story Brings Hope Amid Urban Struggles

Centrum echoed Morgan Stanley's cautious tone, forecasting muted third quarter growth across staples and discretionary categories.

Staples: Revenue growth is expected at just 4%, with Ebitda and profit after tax declining 2.3% and 8.1%, respectively. Rural demand, buoyed by a strong monsoon and state welfare programs, offered some relief. However, urban consumption did not perform as well under the weight of inflation and lower job opportunities.

Premiumisation: Premium offerings like oral care and packaged foods outperformed, while mass categories like soaps and detergents faced pressure. Centrum identified Emami Ltd., Britannia Industries Ltd., Dabur, and ITC Ltd. as top picks due to their strong rural portfolios and diversified offerings.

International Business: Companies like Marico, Dabur, and Godrej Consumer Products reported mid- to high-single-digit growth in constant currency terms, though currency devaluation dampened profitability.

Both brokerages noted a modest revival in rural consumption, supported by good monsoons and government initiatives. However, urban demand remained sluggish, dragging down overall growth.

Despite the festive season, discretionary categories like apparel, quick-service restaurants, and paints underperformed, they said.

Elevated food and commodity prices continued to hurt margins, according to them.