In a surprising move, there seems to have been a revival in urban demand. What are you making of the comments and updates from the companies because these stocks are doing very well in today’s trade?
Amnish Aggarwal: A mixed update has come from many of these companies and it is not a very big surprise. For example, in the case of Dabur, although this year juices or glucoses some of the segments have not done well, the base is now highly favourable after 3-4 very bad quarters. That is why some growth is now visible. But if you look at the very broader side of things, we believe that the benefits of decline in inflation, tax cuts and the fact that the base is not great, will start reflecting in improved demand across the board.
An increase in the volume growth for most of the companies will not be very sharp. It might happen at a very moderate pace, but definitely things are looking better than what they were in 4Q and the outlook remains reasonably positive given that the monsoons are likely to be normal, the inflation is under control, and tax rates as also the interest rates have been cut. That gives us a reasonably positive outlook for the growth incremental to what seen in the past few quarters.
Which segment do you believe can outperform going ahead as well because a bit of surprise is coming in from the companies that have already come out with the numbers? Going ahead, is there any particular segment that you want to flag off where the pricing pressure and the inventory stocking are normalising right now?
Amnish Aggarwal: It is very difficult to pinpoint any particular segment per se because this quarter was not great for companies which are more into the summer-centric products. Now whether these are beverages or are some of the other products like Navratna or talc, etc, which are Emami products. So, it is very difficult to say that any particular trend will emerge. It will depend upon the seasonality. On the very broad side, the kind of pressure we were witnessing on the consumer wallet, on volumes and demand, seems to be slowly abating and the volume growth is giving us an indication that there could be a gradual uptick in them going forward.
If you compare the updates we have received from big-box retail, like DMart and Trent with the ones that we have received from pure play FMCG names, does this indicate that the puck may now be shifting from discretionary to consumer staples? Is that a trend that we could conclude based on the limited numbers we have seen so far?
Amnish Aggarwal: That will be wrong to conclude. For example, Trent was growing at 30% 40% for a few quarters and this quarter it has grown by 25%. Now, for most of these retail companies, there is a mix of two components over there. One is the increase in your area or the number of stores and second is the SSG. For example, in the case of DMart also, on a per store basis on an average, the sales are just under 2%. So, that is not a very healthy number.
Now in the case of Trent, there is also the increase in area there and definitely the growth rates in all these companies on a year-on-year basis, that does not indicate a very sharp uptick. Look at Jubilant FoodWorks, which is a solitary case in the entire QSR pack where like to like sales are up in double digit for the second consecutive quarter. But that might not be the case for the rest of the pack.
Yes, there is an uptick in the discretionary demand but the uptick is very muted, very gradual, and in some of the companies which were growing very fast last year maybe due to base or maybe because the demand scenario is not that great as of now, we are witnessing some moderation in demand.
The FMCG index is the top gainer today. You have been flagging off that it is a mixed bag this time around though Q1 is better than Q4. Do you believe that the stock moves are justified today and this up move can continue for some more time? The reason I ask this is because the FMCG pack has been a key underperformer and has been consolidating for a while. What is your take on the valuations and is this a good time to add on to some names?
Amnish Aggarwal: The growth rates are picking up at a very tepid pace. In terms of the stock price reactions, the growth rates are expected to be better and that is already factored into the estimates of say FY26 to quite a good extent. Will there be any big upgrades to the estimates? That we will learn only over the course of maybe this quarter or next quarter when better visibility comes.
Coming to the valuation, while many of the discretionary stocks have been doing well, they have seen an up move in the past, most of the FMCG stocks in the past six months, were down in the dumps. For example, Britannia was quoting at sub-Rs 5,000. Even Lever touched Rs 2150, 2200. Many of these stocks had gone to very low levels, although the PE multiples have not corrected to that extent. My sense is that from those low levels, we have seen some sort of improvement in the growth rates and the stock prices because they have not gone anywhere, not for the last few months, but in the last year, year-and-a-half. That is the sort of optimism which is getting reflected in many of these stocks.
But having said that, one should be very stock specific because ultimately it will depend upon that particular company’s numbers, how the valuations are, and how the things are panning out. We have been very positive on Britannia. Lever has been, more like a trading bet with an upside up to say 2600, 2650 and on the staple side, ITC is another stock where we have been very positive. It is having its own set of problems as of now, but given that it is a beaten down stock, this is the one which seems to be very convincing at the present moment and it should give decent returns over the next 6 to 12 months.
