Extended winter to dent Q4FY24 prospects for consumer pack; Nuvama suggests 6 stocks to buy

Nuvama forecasts a gradual recovery for consumer staples in FY2025, picking top stocks amidst comparisons with Nifty FMCG index. Q4FY24 may show muted growth, with price hikes and ad spends expected in FY2025.

Consumer staples are likely to see a gradual recovery from the second half of FY2025, said in a note as it sees extended winter hurting categories in Q4FY24. Ahead of the earnings season, which begins in less than a fortnight, the domestic brokerage picks , , , , and as its top buys.

Out of the above suggested stocks, India has been the biggest laggard, underperforming not just the index but the broader as well. Tata Consumer ranks among the best performers. The gains in Nifty FMCG index have been to the tune of 19% over a 1-year period versus 30% by the latter during this period.

Nuvama sees demand trends in Q4FY24 similar to Q3FY24 with persisting rural slowdown and urban markets driving the growth led by traction for premium products. While extended winter hurt categories such as household insecticides, it did not benefit winter care products too much, this brokerage said.

The prolonging of winter could have an adverse impact on demand in Q1FY25 although the upcoming elections may create a temporary surge in demand for small packs of snacks and biscuits. There could be 6–8% incremental sales of small packs of snacks and biscuits during the election period (Q1FY25) in UP, Rajasthan, Bihar, West Bengal and Tamil Nadu.

For Q4FY24, Nuvama expects companies to post muted growth albeit improvement in margins.

Q4FY24 estimates

In Q4FY24, rural volume growth is likely to be sluggish year-on-year similar to what happened in Q3 with a marginal improvement on a two-year basis.

While urban areas will still lead the growth, premium products are expected to outperform the mass products. Negative price growth is likely to continue in Q4FY24 for companies such as Hindustan Unilever (HUL), , , Pidilite along with paint companies.

Nuvama feels that FMCG companies will likely hike prices by 2–3% in FY 2025. Though gross margins are still expanding YoY, a large part of it is expected to get invested on ad spends.

United Breweries could see a 9–10% volume growth in Q4FY24 led by innovations, share gains and proactive steps, the Nuvama note said.

FMCG industry value growth for CY24 is seen in a range of 4.5-6.5% versus the robust 9.3% growth in 2023 aided by high inflation, Nuvama said, quoting NielsenIQ.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times.)

Source: Stocks-Markets-Economic Times