Nomura expects higher raw material costs to pressure margins at Godrej Consumer Products (GCPL), Hindustan Unilever (HUL) and paint companies, with sugar, milk and wheat prices rising alongside crude-linked inputs. The brokerage said the agri-commodity raw material basket was "getting inflationary", while geopolitical disruptions in West Asia continued to keep crude-linked costs elevated.
In its November 4 commodity tracker, Nomura said consumer companies had taken price hikes of 5-8%, but these were still lower than input cost inflation. "While margins will see sequential improvement it will still be down on a y-y basis," it said.
The brokerage expects GCPL, HUL and paint companies to be among the most exposed to crude and its derivatives. A material correction in crude prices from current elevated levels would benefit these companies, along with Colgate. Marico, Tata Consumer Products, ITC, Dabur, Britannia and Nestle are likely to be the least exposed beneficiaries of any such correction.
Nomura's preferred stocks in consumer staples are Marico, Tata Consumer Products and ITC, all rated 'Buy'. In consumer discretionary, its top picks are Lenskart Solutions and Titan, while United Spirits and Allied Blenders are its preferred alcohol beverage stocks, also rated 'Buy'.
Sugar prices jumped 11% month-on-month in October and were up 29% year-on-year, despite government measures to increase supply and curb hoarding. Nomura said the increase could impact margins at Britannia, Nestle, Dabur and ITC's foods business.