According to Nomura's September 28 report, the brokerage has issued 'Buy' ratings on Marico, Tata Consumer Products, Nestle India, Lenskart, Titan, and United Spirits in consumer staples, along with ITC in consumer discretionary. The firm maintains a 'Neutral' rating on Hindustan Unilever, Epsilon Advanced Materials, and Dabur. Nomura expects a volatile demand and margin environment for consumer companies but remains positive on stocks with strong brands, resilient portfolios, pricing power and execution capabilities.
As reported by Nomura, most raw material prices, except for Brent and HDPE, have either remained range-bound or softened month-on-month in September. However, they are still up quarter-on-quarter and year-on-year at levels materially above the product price hikes taken by consumer companies in 1QFY27. This could pressure near-term margins in 2QFY27F and warrant further product price hikes across the sector. Near-term margins are likely to remain under pressure as the hikes are lower than the input cost inflation, according to Nomura, noting that lower-priced inventory had helped limit the impact on margins in the first quarter of FY27. Higher oil and commodity prices have so far seen limited pass-through to consumers, while companies had absorbed part of the increase in input costs. However, these buffers could wear off, particularly if crude remains elevated for a prolonged period.
According to Nomura's analysis, palm oil prices have remained stable month-on-month but are up 21% year-on-year in rupee terms. The cut in basic customs duty on crude palm oil to 5% from 10%, effective September 24, could provide relief to GCPL and HUL. Sugar prices corrected sharply, falling 8% month-on-month and 21% from their peak, but remain up 18% year-on-year, potentially pressuring margins for Britannia, Nestle, Dabur, ITC and HUL. Copra prices softened 3% month-on-month and remain 32% below last year, which Nomura expects to support Marico's margins. Liquid paraffin prices, while down 5% month-on-month and 4% quarter-on-quarter, remained 38% higher year-on-year, which could keep pressure on hair oil and personal care companies including Dabur, Marico, Hindustan Unilever and Godrej Consumer Products.
According to Nomura's latest projections, Nestle India is expected to deliver 17% volume and mix growth, driving around 23% sales growth and 35% EBITDA growth. The brokerage expects India's consumer staples sector to post 13.8% year-on-year sales growth in 2QFY27F, above its eight-quarter average of around 9%, with stable volumes and higher pricing offsetting a volatile macro backdrop. Marico is expected to post 8.5% volume growth and 13% sales growth, with copra prices down 32% year-on-year, allowing for strong year-on-year margin expansion and EBITDA growth at 26%. Lenskart is expected to report 23.5% overall volume growth and around 28% revenue growth, with operating leverage driving 31% EBITDA growth and 34% EBITDA pre-IND-AS growth. Tata Consumer Products is expected to post 12.5% sales growth and EBITDA growth of 16.4%, with operating margin improving to 14% from 13.5%.
As reported by Nomura, Brent crude and HDPE prices increased 28% and 5% month-on-month respectively and are up 40% and 45% year-on-year amid geopolitical uncertainties. This is expected to increase packaging costs for consumer companies and pressure paint margins across the sector. Brent crude prices were up 40 per cent year-on-year in September, while HDPE prices were 45 per cent higher year-on-year, despite both declining sequentially. Nomura said elevated and volatile crude and HDPE prices could increase packaging costs for consumer companies and materially affect gross margin expansion for paint companies, even after recent price increases. Oil prices, while a risk, do not by themselves explain the extent of the market correction, Nomura said. It estimates that the impact of crude rising from around $70 a barrel before the war to $90 remains relatively contained, with oil marketing companies and, to some extent, the government, through lower excise duty, absorbing the impact.
According to Nomura's latest analysis, the brokerage expects earnings growth excluding oil and gas to be in the 11-12% range over the remaining nine months of the current financial year, before rising to around 16% in FY28. However, sustained crude prices above $100 could trigger earnings cuts, as companies' ability to absorb higher input costs diminishes. Indian equities could remain under pressure despite a healthy earnings trajectory, as the markets witness elevated crude prices, geopolitical uncertainty and concerns over the longer-term impact of artificial intelligence on technology companies. Nomura's March 2027 Nifty target stands at 25,900, implying about 13% return from current levels, though the brokerage acknowledged uncertainty around the target as estimates were made after the start of the West Asia war. Investors were increasingly scrutinising valuations amid technology disruption and geopolitical risks, with Nomura expecting lower valuations to persist even as earnings remain healthy and seeking greater selectivity in stocks.
