FMCG firms to see weak volume, value growth on muted urban demand, GCPL top bet: Kotak Institutional Equities

Kotak Institutional Equities' top pick in the FMCG pack is Godrej Consumer Products Ltd.

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Consumer staples firms are likely to see muted volume and value growth over the current and next quarter as urban consumption remains muted, noted domestic brokerage Kotak Institutional Equites.

However, rural demand - which makes up one-third of total FMCG sakes - is stable, but not appreciating. Regardless, rural consumption is likely to outpace its urban counterpart for the fifth consecutive quarter.

Kotak Institutional Equities added that inflationary pressure in a few select commodities, such as palm oil, tea and coffee, would result in FMCG players seeing continued margin pressure for another quarter or two. "We factor in weak consumption continuing into 1HFY26E and moderate estimates of FMCG companies across the pack," said the research firm.

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The brokerage's top pick in the FMCG pack is Godrej Consumer Products Ltd. (GCPL). The firm's stock has tumbled 25 percent over the past six months, as a result of high commodity inflation, competitive pressure in soaps and concerns around its home insecticides (HI) business.

However, according to Kotak's channel checks,  the current season for GCPL’s HI business is shaping
up well. The company’s Renofluthrin (RNF,  India's first indigenously developed mosquito repellent molecule) products have started to show some encouraging results, with GCPL gaining a 200 bps share in markets where it is launched.

"Notwithstanding the near-term margin weakness, we believe that GCPL will be able to recoup its soap segment’s profitability through gradual price hikes (high single-digit price hikes thus far) and/or potential easing of palm oil prices once the new crop arrives by Q2FY26," stated the brokerage.

Kotak assumed  continued weakness in consumption in H1FY26 and trimmed earnings estimates and valuation multiples across the board.

1. Hindustan Unilever: Cut estimates by 0-3 percent and revised its fair value to Rs 2,450
2. Nestle India: Cut estimates by 0-3 percent and revised its fair value to Rs 2,280
3. Britannia Industries: Cut estimates by 0-3 percent and revised its fair value to Rs 5,025
4. Dabur India: Trimmed estimates by 0-1 percent and revised its fair value to Rs 540
5. GCPL: Cut estimates by 1-3 percent and revised its fair value to Rs 1,250
6. Marico: Trimmed estimates by 0-2 percent and revised its fair value to Rs 635
7. Colgate Palmolive (India): Cut estimates by 1-3 percent and revised its fair value to Rs 2,600
8. TCPL: Cut estimates by 2-4 percent and revised its fair value to Rs 1,025.