Consumer sector in focus post-election results! D-Mart, Tata Consumer could give 12-18% in 1 year

Most investors were in sync with us on the risk-reward proposition; however, they wanted to see more signs of recovery before buying into the sector.

In the last week, the risk-reward proposition, along with sector tailwinds, has quickly gained the required attention.

Growth in the is driven by price hikes in the last two years due to high inflation and slower .

Macro headwinds and price hikes have been delaying the recovery in the , which is under pressure due to weak income growth.

The mass segment was exposed to inflation; hence, the volume recovery has been delayed.

During this period, we have seen down-trading, a higher mix of low unit packs (LUPs), etc. With steady improvements in macroeconomics and price cuts by FMCG companies, we anticipate a rebound in volume growth.

With a prolonged slowdown in rural markets, the government can also be more active in accelerating the volume growth performance.

In our estimates, we have estimated high single-digit volume growth for FY25 and FY26. Thereby, any meaningful pickup in volume growth in ensuring quarters can lead to upgrades in our volume growth assumption.

Secondly, the recent fall in crude prices can further boost gross margins; we have built marginal GM expansion for FY25-26E. The upside revision is also possible if crude prices remain around the current low levels.

We have rather built cost control-led in FY25. Thirdly, any change in the government’s push for consumption (particularly rural) can further fuel volume growth.

We believe that as earnings catalysts are in place and stocks are also within our fundamental value, the risk factor is still under control. However, volume performance will be critical to maintaining the stocks’ performance.

The sector has seen several headwinds in FY23/FY24, we believe the earnings cycle will see an upward trend. An above-normal monsoon, rural pickup, distribution expansion, seasonal benefits (summer/winter portfolio has a favourable base) and steady raw material prices provide visibility on the in FY25.

Avenue Supermarts: Target Rs 5310| LTP Rs 4745| Upside 12%

has seen a 20% revenue CAGR over the period FY20-24, led by 18% footprint additions. Notably, the narrowing gap between revenue per square foot (up 6.2% YoY) and revenue per store (up 7% YoY) indicates a positive shift towards larger-format stores, reflecting a promising trend for the company.

Healthy cost efficiencies and a recovery in discretionary demand are likely to drive growth. D-Mart is well-positioned to meet diverse consumer needs and drive sustained .

There is continued expansion of DMart Ready, deepening its presence in existing cities.

Tata Consumer: Buy| Target Rs 1350| LTP Rs 1135| Upside 18%

TATACONS's holistic strategy is aimed at: i) strengthening and accelerating its core business, ii) exploring new opportunities, iii) unlocking synergies, iv) digitizing the supply chain, v) expanding its product portfolio and innovation, vi) enhancing its focus on premiumization and health & wellness products, vii) embedding sustainability, and viii) expanding its sales and distribution infrastructure, supply chain, and capability building toward being a multicategory FMCG player.

The short-term tea business volume growth is expected at 2-4%, while mid-single-digit growth is anticipated in the medium to long term. Margin improvement is expected in the international beverage business going forward.

Agencies

(The author is Head – Retail Research, )

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