ITC, Trent, Marico shares: Goldman Sachs says these stocks are better placed amid urban demand slowdown

Goldman Sachs in its latest note said the commentary from most consumer companies across FMCG, QSR, footwear and paints confirms that urban consumption has seen a sharp slowdown in the past six months. In contrast, rural consumption has remained resilient and is gradually improving. 

This, it said, is also corroborated by the slowdown in passenger vehicle sales in the past six months. A quick recovery, however, is unlikely, GS said.

"The factors driving the slowdown, such as high food inflation and the slowdown in unsecured consumer credit, in our view are likely to continue in the near term. Hence, we are unlikely to see any rebound in the near term," the foreign brokerage said.

Goldman Sachs believes stocks better placed in this environment include HPC companies such as GCPL, Marico and Emami. It also likes Pidilite due to the strong housing cycle and Titan for the top-end consumption. The broking firm said Trent is a market share gain story. It also likes United Spirits and ITC.

Home and personal care (HPC) companies: GS said home and personal care companies are better placed than food companies for the H2FY25 growth outlook. HPC categories have a much greater share of rural consumption compared to packaged foods companies, it said. 

Given the current scenario of slowing urban consumption and resilient rural consumption, HPC categories are likely to grow stronger, it said,

"Within HPC, we prefer GCPL (Buy) given its bottom-up growth drivers like 1) a revamp of home insecticide formulation to deliver superior efficacy, 2) ramp up of high growth segments like air care and liquid detergents and 3) restructuring of the Africa business. We also like Marico (Buy) for visibility of price led revenue growth in FY25 and scale up of new foods and digital first brands. Buy-rated Emami’s valuations are attractive, and the company has the highest rural salience,"  GS said. 

Pidilite Ltd: GS expects Pidilite to deliver resilient performance as it is a beneficiary of the strong real estate cycle and also is scaling up new product segments like tile adhesives and epoxy adhesives.

Titan Company Ltd: GS expects top-end consumption to remain resilient, which includes jewellery. Titan is likely to deliver strong growth driven by gold jewellery, and continued market share gains from the unorganized sector. The company has witnessed a one-time reset of margins due to increased competitive intensity, which is largely over, GS said.

Trent Ltd: Trent is one of the strongest growth stories in India consumer, with the key driver being market share gains in India’s value fashion market, through its brand Zudio. GS expects a 28 per cent revenue CAGR over FY24-30. As the growth is market share gain driven, we expect a limited impact on Trent from the urban slowdown.

United Spirits Ltd: USL’s growth is driven by the premiumisation in the Indian spirits category, and the company’s high market share of 50 per cent in the scotch market of India. While USL’s growth is impacted to some extent by the urban slowdown, the reopening of the state of Andhra Pradesh for the company should partially offset this slowdown in 2HFY25.

ITC: ITC’s cigarette business is delivering steady 3-4 per cent volume growth and 6-7 per cent pricing growth. The company has been facing margin pressures in other businesses like paper for the past 4 quarters, but the drag from these on overall EPS growth is likely to reduce in 2HFY25 as the base margins will also be low, thus making the YoY decline lower. ITC’s valuation at 26 times FY26E earnings also remains reasonable, GS said.