ITC offers best margin of safety, Titan top bet: BNP Paribas on FMCG stocks

BNP Paribas on Friday said ITC Ltd offers the best margin of safety within the consumer sector, supported by its attractive dividend yield and reasonable valuations. Alongside ITC, Titan Company Ltd — anticipated to deliver a strong performance in FY26 — has been identified as a top sectoral pick.

The brokerage noted that consumer staples have recently benefited from a flight to safety. However, as macroeconomic concerns begin to ease, BNP Paribas foresees the possibility of a reversal in the recent outperformance of such staples stocks.

Among staples, BNP Paribas said commentaries from Marico, Dabur India and GCPL indicate that demand has been resilient while urban slowdown, led by weakness in general trade, persisted in Q4FY25. It expects most companies to witness YoY gross margin pressures despite the pricing action and expect this to flow to Ebitda margins resulting in flat YoY Ebitda growth on aggregate. 

"Among the Indian consumer companies that have shared their business  updates, Marico and GCPL expect a slight uptick in overall volumes, while Dabur has seen subdued volume growth in the quarter," BNP Paribas said.

BNP Paribas identified near-term tailwinds, such as declining crude oil prices and encouraging indicators from our economic heat map, which suggest improving rural growth trends. 

"Additionally, the base for comparison will remain favourable in FY26, as fast-moving consumer goods (FMCG) companies are expected to conclude FY25 with low single-digit revenue growth and flat EBITDA,” the brokerage stated.

In the discretionary space, BNP Paribas said jewellery companies are set to post strong sales growth YoY in Q4FY25, helped by an increase in gold prices. 

ITC
BNP Paribas said ITC has reported 9 per cent earnings CAGR over FY14-24, which is the median for its FMCG coverage over this period. The company offers the highest dividend yield in the FMCG coverage. 

"Its growth outlook has improved over the years, due to a stable taxation regime, following the implementation of GST. We think its valuation looks attractive in an expensive Indian consumer stock universe," BNP Paribas said.

Titan Company
BNP Paribas said despite being  the market leader, Titan accounts for only 7-8 per cent of the industry's revenue. The jewellery industry has gone through structural changes, such as mandatory disclosure of PAN card and hallmarking of jewellery, which benefit large, national, and trusted brands such as Tanishq (owned by Titan), the brokerage noted. 

Titan's management expects the jewellery division's sales to grow at a CAGR of 15-20 per cent in the medium term. 

"The company has met this target, despite the slowdown in the broader  consumption space. We see opportunities such as expansion of store count, market  share gains and international expansion to help drive revenue and earnings growth," BNP Paribas said. 

"Titan is likely to see earnings decline in FY25 due to margin issues, part of which are one-off. We expect strong earnings rebound with 39 per cent YoY earnings growth in FY26. As  the concerns on margins and lab grown diamonds