Nestle, Marico, Lenskart among Nomura picks as consumer margins face pressure

The latest market report highlights that Nomura anticipates India's consumer staples sector to post 13.8% year-on-year sales expansion in 2QFY27F, above its eight-quarter average of around 9%, with stable volumes and elevated pricing offsetting a volatile macro backdrop.

That stated, "most of our covered firms are likely to see sequential contraction of gross margins as they consume elevated-cost inventory".

Nomura anticipates volume expansion to stay "largely stable q-q" while pricing expansion rises as firms see the full effect of price hikes taken after the West Asia war. Operating leverage should help sustain EBITDA margins sequentially.

Among individual stocks, Nomura anticipates Nestle India to deliver 17% volume and mix expansion, driving around 23% sales expansion and 35% EBITDA expansion. That stated, "given the rich valuations vs peers, we expect the stock price to stay rangebound".

Marico is anticipated to post 8.5% volume expansion and 13% sales expansion. With copra prices down 32% year-on-year, "we expect MRCO to stand out and see firm y-y margin expansion", with EBITDA expansion at 26%.

Lenskart is anticipated to report 23.5% overall volume expansion and around 28% topline expansion, while operating leverage should drive 31% EBITDA expansion and 34% EBITDA pre IND-AS expansion.

Nomura anticipates Tata Consumer Products to post 12.5% sales expansion and EBITDA expansion of 16.4%, with OPM improving to 14% from 13.5%. Colgate is anticipated to deliver around 14% sales expansion and 11% EBITDA expansion, while Allied Blenders & Distillers is noted at around 10.4% volume and sales expansion and 7% EBITDA expansion.

For HUL, Nomura anticipates 11% topline expansion and 8% EBITDA expansion. ITC's cigarette volumes are anticipated to slide 7.5%, although cigarette EBIT slide should narrow to 27% from 35% in 1QFY27F.

Among weaker calls, United Spirits is anticipated to see a 4% volume slide and 6.3% EBITDA slide. Godrej Consumer's margins are anticipated to face "the highest pressure among our staples coverage", with EBITDA expansion at 9%.

In paints, volume expansion is anticipated at 6-7%, with topline expansion of 13-14%. Overall, Nomura prefers firms with "resilient portfolios and those that are executing better" in a "volatile demand and margins environment".