The consumption sector has seen a sharp downturn during the corrective phase of the markets seen over the past six months. Muted wage growth, rising prices, and higher leverage have impacted demand, and therefore earnings, for a series of consumption players, noted Motilal Oswal.
As a result, India’s policymakers have taken cognizance of weak consumption and are adjusting both fiscal and monetary policies to boost aggregate demand, liquidity, and sentiments. Given this, the brokerage said, "Selective stock picking opportunities have emerged, as consumption indices have significantly underperformed over the past six months."
Nifty FMCG and Consumption indices have fallen ~20 percent and 17 percent from their peak in September 2024, underperforming the Nifty 100 by ~900-600 bps. The brokerage noted that this is an aberration from historical trends, as consumption indices typically outperform the benchmark during phases of sharp market downturns, given their defensive positioning nature.
During the last 11 phases of a correction in the Nifty 50 over the past two decades, the Nifty FMCG and Nifty Consumption indices have outperformed, delivering an average alpha of 10 percent and five percent, respectively.
Therefore, this ongoing underperformance can be explained by poor earnings in FY25. However, for select stocks, the government policy intervention can drive positivity. The brokerage picks a few small-cap and mid-cap counters to bet on, across consumer segments.
Page Industries [Buy | Target Price: Rs 57,500]
India's per capita innerwear consumption is low compared to global standards, offering significant growth potential. Page Industries has demonstrated consistent revenue and earnings growth over the past decade, with a 15 percent CAGR in sales, EBITDA, and PAT as of FY24, alongside a robust RoE of over 40 percent. The company’s growth has been driven by strong sales and efficient margin management.
Metro Brands [Buy | Target Price: Rs 1,525]
Metro Brands’ acquisition of licenses for FILA and Foot Locker in India addresses the key whitespace in the fastest-growing Sports & Athleisure category. Given the strong runway for growth in Metro, Mochi, and Walkway formats, along with significant growth opportunities in FILA/Foot Locker, the brokerage built in revenue/EBITDA/PAT CAGR of 13 percent/17 percent/20 percent over FY24-27E.
Devyani International [Buy | Target Price: Rs 215]
As the largest franchisee for Pizza Hut, KFC, and Costa Coffee in India, Devyani International benefits from well-established, globally recognized brands. Despite a slowdown in demand, the firm focuses on store expansion. It is prioritizing small-format, capital-efficient stores for its newly introduced brands. This strategy aims to balance growth with operational efficiency while adapting to evolving market dynamics.
LT Foods [Buy | Target Price: Rs 460]
LT Foods is a leading player in the global Basmati rice market, with a ~30 percent market share in India and over ~50 percent in the U.S. under its flagship brands Daawat and Royal. With 69 percent of its revenue derived from exports, LT Foods is well-positioned to benefit from rising global demand, particularly in key markets like the Middle East, Europe, and the U.S.
Cello World [Buy | Target Price: Rs 800]
Cello World has established itself as a leading consumer products brand with a diversified presence across consumer houseware & glassware (66 percent of FY24 revenue), writing instruments & stationery (17 percent), and moulded furniture & allied products (17 percent). The firm benefits from a growing TAM driven by favorable demographics, rising discretionary spending, and evolving gifting trends.
Lemon Tree [Buy | Target Price: Rs 190]
Lemon Tree continues to expand into the luxury segment. With increasing occupancy and higher average room rate driven by rising international and domestic travel, the company is well-positioned for sustained revenue per available room growth and enhanced market presence. The strong demand momentum in the hospitality sector is likely to continue due to the
uptick in large conventions and corporate events. Meanwhile, key religious destinations are
expected to witness significant traction, led by the growth in religious tourism.
V-Mart [Buy | Target Price: Rs 3,850]
Among the broader retail universe, value retailers have outperformed, driven by healthy SSSG,
despite weak discretionary environment. V-Mart has implemented significant cost rationalization measures, including reducing marketing expenses, streamlining logistics, and optimizing operational costs.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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