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Consumer discretionary : Steady revenue growth, margin pressure continues

ICICIdirect Research 18 Aug 2022 DISCLAIMER

What’s Buzzing

The consumer discretionary (CD) universe reported steady revenue growth while EBITDA margin pressure continuing in Q1. 


The CD universe reported revenue growth of 59% YoY, much ahead of our estimate of 42%, largely on a favourable base. On a three-year basis, coverage universe reported revenue CAGR of ~14% led by strong revenue growth reported by paint companies. Decorative paint majors Asian Paints & Berger Paints recorded strong volume CAGR of 20% and 14%, respectively, led by dealer additions and launch of new products. On the FEMG front, intense summer and market share gains drove strong revenue growth of 125% and 119% for Voltas and Havells, respectively. The EBITDA margin pressure of the coverage universe continued in Q1 due to inventory losses and high raw material costs in the FMEG and PVC piping companies. 

Our Perspective

The CD universe witnessed EBITDA margin pressure in Q1FY23 dragged by FMEG and pipe companies. The sector companies reported EBITDA margin decline in the range of 400-500 bps YoY, mainly due to use of high cost inventories and increased advertisement expenses in Q1FY23. The management have said that high cost inventory will be exhausted by Q2FY22 with margin recovery set to start from thereon. On the other hand, paint companies have reported a margin recovery led by price hikes and improved operating leverage. Going forward, we see good festive demand as catalyst to growth and easing raw material prices to reduce EBITDA margin pressure. We are positive on Asian Paints for its sustained volume growth with limited impact on margins. We also like Polycab and Bajaj Electricals for their focus on new launches and geographical expansion leading to market share gains.

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