Soft demand, margin pressure to be seen in Q2FY23E - Consumer Discretionary Q2FY23 Preview
Soft rural demand and use of high cost inventories are expected to weigh on the bottomline of the consumer discretionary universe (excluding paint).
The bottomline of the I-direct consumer discretionary universe (excluding paints) is likely to see a fall of ~12% YoY in Q2FY23E dragged by 220 bps contraction in EBITDA margins. High cost inventory and higher ad spends are likely to weigh on Q2 EBITDA margin. On the revenue front, the CD universe (excluding paints) is likely to report price led revenue growth of 10% YoY in Q2FY23. The volume offtake of electrical goods and plastic pipes is likely to be muted owing to lower rural spending, volatile PVC prices and high base impact. The demand recovery was seen towards the end of the quarter with the start of the festive season. Paint companies are likely to report strong revenue growth of ~20% in Q2FY23 supported by higher realisations.
Key raw material prices such as PVC and copper have continued their southward journey with 18% QoQ dip. This is likely to keep gross margin recovery under check for plastic piping and FMEG companies. On the flip side, paint companies are likely to witness gross margin recovery (to the tune of 30-120 bps QoQ), mainly due to price hikes and change in product mix. Kansai Nerolac is likely to outperform the paint universe with overall volume growth of 19% in Q2FY23 led by strong demand for industrial paints. Going forward, we believe strong festive demand and softening raw material prices are expected to drive the performance of pipes and FMEG companies from H2FY23 onwards.
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