KFC To Kingfisher: UBS Initiates Coverage On Five F&B Consumption Stocks

UBS Research has initiated coverage on five companies in the food and beverage space, betting on the country's growing discretionary spending, premiumisation and deeper penetration.

The research firm expects premium packaged staples, beverages and out-of-home food consumption to outpace traditional FMCG categories. "Premiumisation and indulgence are redefining India’s F&B consumption," it said.

This growth is underpinned by segments of the population crossing a per capita income threshold and driving discretionary spending, UBS said in a March 15 note. "However, these segments also mirror a near-term concern about a demand slowdown in the broader FMCG segment."

The brokerage has a 'buy' rating on United Breweries Ltd., Devyani International Ltd., and Sapphire Foods India Ltd. and a 'neutral' call to Tata Consumer Ltd. and Varun Beverages Ltd.

United Breweries

• India's beer market is a sleeping giant, with low per capita consumption compared to China and the U.S., UBS said.

• The market is characterised by repeat purchases, asset-light scalability, and strong brand loyalty.

• Favourable tailwinds like growing disposable income, rising temperatures and better retail penetration are fueling demand.

• However, despite its high potential, India's beer market has been held back by policy.

• It appears underweight in the premium segment, and a correction may be underway.

Devyani International and Sapphire Foods India

• Both have consolidated geographies, cut costs and rationalised store sizes, to become profitable at the unit level.

• This has given them the ability to expand store penetration rapidly, and the research firm expects them to outperform market growth over the next few years.

• It expects both franchisees to nearly double their store count over the next three to four years.

• Sapphire Foods appears to be overshadowed by Devyani International in terms of valuation.

• Both DIL and Sapphire are expected to record healthy 15–16% revenue growth over FY24–28.

Varun Beverages

• Growth to remain strong, but the scope for surprises is limited.

• Expects about 23% earnings per share CAGR over 2023–27, driven by capacity expansion in India.

• However, near-term catalysts appear priced in, prompting cautious optimism.

• VBL's points of sale, potentially catching up to those of its rival, Coca-Cola, could add another lever for share gain.

Tata Consumer

• The brokerage views Tata Consumer Products as a blend of established giants and future disruptors in India's FMCG space.

• The company has robust growth plans, a strong brand portfolio, and a strategic focus on acquisitions.

• TCPL is poised to become a significant participant across the spectrum of F&B market segments in India.

• Expects 15%/27% CAGR in revenue/EPS over FY24–28E, which is towards the higher end of their range of forecasts for FMCG companies.

• However, the current valuation has already priced in some of TCPL's growth triggers, limiting its near-term upside potential, UBS said.