- Rising energy prices may pressure margins in India's consumer and lifestyle sector
- Brands with strong loyalty like Titan and Marico can better pass on higher costs
- Macquarie rates Titan, Marico, Trent, Godrej Consumer, and Lenskart as 'Outperform'
Rising energy prices triggered by escalating geopolitical tensions could create margin pressures across India's consumer and lifestyle sector, according to brokerage Macquarie, which says companies with stronger brands and premium positioning are better placed to navigate the cost shock.
The brokerage has reiterated Outperform ratings on Titan, Marico, Trent, Godrej Consumer Products and Lenskart, while maintaining a more cautious stance on several other consumer names.
Brands with strong consumer loyalty and pricing power - such as Titan in jewellery or Marico in premium personal care - are expected to be better positioned to pass on higher costs without significantly hurting demand.
Key Stock Calls and Target Prices
Macquarie's preferred consumer picks include companies with pricing power and premium positioning, which could help offset rising input costs.
- Titan - Outperform; Target Price: Rs 5,000; Upside: 20%
- Marico - Outperform; Target Price: Rs 850; Upside: 13%
- Trent - Outperform; Target Price: Rs 4,900; Upside: 35%
- Godrej Consumer - Outperform; Target Price: Rs 1,400; Upside: 29%
- Lenskart - Outperform; Target Price: Rs 550; Upside: 9%
The brokerage also maintains Neutral ratings on ITC, Nestle, Dabur and KNRL, while assigning Underperform ratings to companies such as DMart, Britannia, Page Industries, Nykaa and Jubilant FoodWorks due to valuation concerns or potential margin pressures.
ALSO READ: Crude Oil Surge May Force FMCG Price Hikes; HUL, Godrej Consumer Among Most Exposed: CLSA
Energy Costs Emerging as Key Risk
Macquarie notes that the ongoing Middle East conflict has increased the risk of higher oil and gas prices, which could translate into higher packaging, transportation and input costs for consumer companies.
Historically, the government has stepped in to moderate fuel price hikes during periods of sharp inflation. However, if crude prices remain elevated, the resulting rise in fuel costs could weigh on household spending and discretionary demand.
Higher freight costs could also affect profitability. Macquarie estimates that logistics costs account for about 6-7% of sales for several companies in the sector.
Gas Supply Constraints Could Hit Segments
Another area of concern is the potential diversion of gas supplies toward household consumption if shortages intensify. This could impact industries heavily dependent on gas for operations, including restaurants and biscuit manufacturers.
Companies with higher reliance on gas-powered production or kitchen operations may face operational disruptions or higher costs.
However, despite the near-term risks, Macquarie believes the broader premiumisation trend in India's consumption story remains intact.
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