ITC, Godrej Consumer, Akzo Nobel Among ICICI Securities' Top Picks In Consumer Staples & Discretionary Sector

ICICI Securities Report

ITC

Cigarettes volume growth trajectory continues to be stable ~3% despite calibrated price hikes to navigate cost inflation and consumer demand being under pressure.

ITC continues to benefit from market share gains for organised players from the illicit cigarettes industry due to:

1. strong deterrent actions by enforcement agencies, leading to significant increase in seizures of illicit cigarettes; and

2. stability in taxes on cigarettes. FMCG had a resilient performance while margins are under pressure due to commodity inflation.

Godrej Consumer

Double-digit volume growth across fast growing categories (air care, hair colour, liquid detergent, deodorants) while legacy portfolio of HI and Soaps have relatively underperformed. Household insecticide witnessed some improvement (mid-single digit volume growth) led by market share gains incense sticks segment and better seasonality while benefits of recently launched LV (with efficacious molecule) will take a couple of quarters to show results.

Soaps volumes were under pressure though it continued to gain market share. That said, soaps portfolio will likely be under pressure due to-

1. significant inflation in palm oil, and

higher relative competitive intensity with HUL being relatively less impacted due to their formulation change which makes them relatively less dependent on palm oil.

This is likely to have material impact on margins of India business. Indonesia continued to perform grow well while  (Godrej Africa, USA, and Middle East) profitability (mid-teens Ebitda margin) sustains.

Akzo Nobel

Akzo Nobel India Ltd.'s higher than (major) peer revenue growth indicates Akzo’s market share gain trajectory has continued in Q2 FY25. Strong demand tailwinds for the B2B market (than B2C market) indicate demand outlook may remain strong for Akzo.

Value categories have relatively done well and may continue the growth traction as premium product launches have continued in Q2 FY25.

Jyothy Labs

Jyothy Laboratories Ltd.'s growth was underwhelming and underperformed peers. However, this was a blip in our view due to demand deceleration and floods in its core market (South contributes ~40% of revenues).

Positively, it largely maintained its market share across categories and expects mid-to-high single digit growth in H2 FY25 (though marked down from double-digit growth trajectory).

Management retained its margin guidance of 16-17% (versus 18.4% in H1 FY25) due to higher brand investments and likely pressure on gross margins due to commodity inflation.

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