Nomura picks Marico, Tata Consumer, ITC; flags 2QFY27 margin pressure from commodity costs

According to fresh market updates, Nomura anticipates a volatile demand and margin environment for consumer firms, but stays positive on select stocks with firm brands, resilient portfolios, pricing power and execution.

Its top picks are Marico, Tata Consumer Products and ITC in consumer staples, and Lenskart, Titan and United Spirits in consumer discretionary – all rated 'Buy'.

The brokerage has a 'Neutral' rating on Hindustan Unilever, Epsilon Advanced Materials and Dabur, while it sees margin pressure for firms including GCPL, Colgate-Palmolive India, Britannia, Nestle India, Tata Consumer Products and paint makers.

"Most raw material prices, except for Brent and HDPE, have either remained range-bound or softened m-m in September. That stated, they are still up q-q/y-y at marks materially above the product price hikes taken by consumer firms in 1QFY27," Nomura stated in its September 28 report.

This could "pressure near-term margins in 2QFY27F, and warrants further product price hikes", it stated.

Sugar prices corrected sharply, falling 8% month-on-month and 21% from their peak, but stay up 18% year-on-year, potentially pressuring margins for Britannia, Nestle, Dabur, ITC and HUL.

Copra prices softened 3% month-on-month and stay 32% below last year, which Nomura anticipates to backing Marico's margins. "The recent softness could ease some pressure on margins (from elevated packaging cost as well) without necessarily triggering a price trimmed," it stated.

Brent crude and HDPE prices increased 28% and 5% month-on-month and are up 40% and 45% year-on-year, respectively, amid geopolitical uncertainties. Nomura anticipates this to gain packaging costs for consumer firms and pressure paint margins.

Palm crude prices have remained stable month-on-month but are up 21% year-on-year in indian rupee terms. The trimmed in basic customs duty on crude palm oil to 5% from 10%, effective September 24, could provide some relief to GCPL and HUL.

Nomura stated GCPL's exposure to crude derivatives and palm oil/PFAD could pressure margins in 2QFY27F, while Colgate could be hit by rising maize and mentha crude prices.

"Gold prices have remained at elevated marks (+46% y-y) but stable during the month (-1% m-m/q-q)," Nomura stated, adding that this could backing recovery in jewellery footfalls and volume expansion.