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ICICI Securities: India’s Consumer Staples And Discretionary-Lower Trade Margins, Discounts, Ad-Spends Moderation Provides Earnings Succour

ICICI Securities: India’s Consumer Staples And Discretionary-Lower Trade Margins, Ad-Spends Moderation Provides Earnings Succour

Various products made by Hindustan Unilever sit for sale on a store shelf in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg News)
Various products made by Hindustan Unilever sit for sale on a store shelf in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg News)

BQ Blue’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages. These reports offer BloombergQuint’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.

ICICI Securities Report

Consumer sector overvaluation, although moderated in 3M, remains high. As per I-SEC Consumer Momentum Indicator (ICMI), sector overvaluation remains high at 23% - despite having moderated from 36% in April 20. This moderation is primarily driven by underperformance versus other sectors- consumer stock basket up 3% versus Nifty over 19% and Banking Financial Services and Insurance Sectors (+ 11%), Information Technology (+36% ) and Automobiles (+31%).

Cost savings provide downside protection to earnings. Given the challenges to revenue growth, most consumer companies have been managed their costs well. We note the lower advertisement spends, both in terms of volume and per unit cost, as the key area of cost saving. Large media buyers like Hindustan Unilever have the opportunity to buy media in bulk and lock-in low rates for rest of FY21. Bajaj Consumer commented that it did not advertise on Television for 2.5 months till mid-June and Marico has guided to approximately 100 basis points saving in advertisement spends without compromising on their share of voice.

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ICIIC Securities Consumer_sector.pdf

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