Q1 earnings preview: Here’s what Nomura expects from Nestle, Titan, other consumer majors’ June quarter results

With Q1 earnings season knocking on the door, Nomura, in its latest note, said that it expects overall consumer staples sales to grow 10.4% year-on-year (YoY) above its eight-quarter average of 7.8% YoY. “We believe volume growth will largely be stable in Q1 FY27 despite the low-to-mid single digit price hikes initiated by companies due to the West Asia war leading to stable demand environment for the third quarter in a row,” the brokerage said, adding that low priced input cost inventory along with the partial effect of price hikes will cushion the impact on gross margins due to the increase seen in raw materials after the war.

Nomura has identified consumer companies it expects to deliver the strongest earnings growth in the April–June quarter of FY27.

Nestle

Nomura expects Nestle to post double-digit volume growth in Q1 FY27, sustaining the momentum seen over the past two quarters under Managing Director Manish Tiwary. The brokerage expects healthy volume and mix growth of 17% year-on-year, driving overall sales growth of 21% year-on-year.

“We believe the impact on Nestle's margins will be limited, given its raw material basket is more heavily weighted toward agricultural commodities, where inflation has remained relatively subdued. As a result, we expect margins to remain largely range-bound year-on-year, supporting 23% EBITDA growth despite a significant increase in advertising and promotion (A&P) spending, similar to previous quarters,” Nomura said.

The brokerage expects Nestle to sustain this elevated growth through the first half of FY27, after which growth is likely to moderate as the company begins to lap a higher base.

Titan

Nomura expects Titan to report another quarter of strong sales growth, with April sustaining strong momentum driven by robust Akshaya Tritiya sales and a low base due to Adhik Maas last year. While demand likely softened during parts of May and June following the Prime Minister's appeal to defer gold purchases, it is believed to have recovered in the second half of June, resulting in jewellery sales growth of 38-40% year-on-year.

“We also note that gold prices have moderated 18% from their peak, which we believe will be supportive of footfalls and volume growth,” the brokerage said. It forecasts the company will maintain standalone jewellery margins at around 10.5% and domestic Tanishq, Mia and Zoya (TMZ) margins at about 11%, the lower end of its guided range of 11-11.5%.

Colgate-Palmolive (CLGT)

Nomura projects Colgate-Palmolive's volume growth to improve sequentially to 6% year-on-year, supported by a low base. It forecasts pricing growth of 2.5% year-on-year in Q1 FY27, resulting in overall sales growth of 8.5% year-on-year.

“We believe Colgate-Palmolive will continue to face the overhang of an inverse duty structure of around 150 basis points, with operating profit margin (OPM) at 30% (-150 bps year-on-year), versus the Street's expectation of 29%, leading to modest EBITDA growth of 3% year-on-year compared with consensus estimates of flat growth,” the brokerage said.

Nomura believes Q1 FY27 will mark the last quarter of modest growth. With price hikes likely to take effect in Q2, it sees the company reverting to high-single-digit to double-digit sales and EBITDA growth.

Dabur

Nomura expects Dabur's India business to drive sales growth of 9% YoY, led by 5% YoY volume growth and 4% YoY pricing growth, with Home and Personal Care (HPC) maintaining strong growth at 13% YoY. “We believe Dabur continues to see benefits of lower-priced inventory in 1Q and expect no pressure on margins, leading to healthy EBITDA growth of 11% y-y,” it said, adding that its international business is expected to log a 12.5% YoY growth, and given that the stock is trading 1-SD below its 10-year trading average, this decent performance can be supportive for the stock price.

Britannia

Nomura expects Britannia's volume growth to improve sequentially to 7.5% year-on-year, driven by the normalization of its international business and the resolution of the dual-pricing issue as competitors have moved to comparable lower price points.

“While Q1 is seasonally a weak quarter, limiting margin improvement, we believe margins will remain stable year-on-year as Britannia benefited from lower-priced wheat inventory and palm oil hedges. This should drive robust EBITDA growth of 12% year-on-year, supported by the revival of its high-margin export business and lower staff costs,” the brokerage said.

Nomura projects pricing growth of around 2.5% year-on-year, although lower other operating income could cap overall revenue growth at approximately 8.5%.

Marico

Nomura projects Marico to deliver sales growth of 8.5% YoY, with Parachute volumes improving gradually to turn positive after five quarters of decline, and Value-Added Hair Oils (VAHO) continuing its strong volume-led performance to grow 25% YoY. “Despite inflation in VAHO and Saffola, the moderation in copra prices should be supportive of a sequential expansion in gross margins; however, we expect the company to step up A&P and invest behind its newer brands, thus limiting EBITDA growth to c.19% y-y,” it said, adding that the company's previous price cuts of about 10% on its Parachute portfolio will suffice as further copra price corrections are not material enough to trigger additional cuts.

Hindustan Unilever (HUL)

Nomura expects Hindustan Unilever to achieve value growth of 10% YoY, driven by the return of pricing growth at 4-5% from calibrated price increases with no material impact on volumes. “However, given its higher saliency towards crude derivatives, along with lower-than inflation price hikes, we expect OPM to be at the lower end of the guidance band at 22.8%, leading to EBITDA growth of c.9% y-y, falling short of double-digit growth,” it said, adding that despite the improvement in the topline, this sub-double-digit EBITDA growth will likely be insufficient to drive market excitement.

Godrej Consumer Products (GCPL)

Nomura expects Godrej Consumer Products' India business to report 11% value growth, driven by a solid volume growth of over 7% and pricing growth of around 3.5%. “However, given its high saliency in palm oil and crude derivatives, we expect 1Q margins to see some pressure from recent/normative levels and come down to 19.6% on consolidated financials, leading to 11% y-y EBITDA growth,” it said.

Tata Consumer Products

Paints Sector

EPL

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Nomura expects Tata Consumer Products to sustain strong volume-led growth and deliver a 15% YoY increase in sales, supported by expansion across all its business segments except for tea. “We expect earlier low-cost inventory to aid y-y margin expansion and support strong EBITDA growth of c.23% y-y on a low base,” it said, adding that while higher freight costs and a correction in coffee prices might cause sequential margin pressure, price increases landing in Q2 should support future revenue momentum and sequential margin expansion from Q2 onwards. Nomura expects the paint sector to sustain high-single-digit to double-digit volume growth because the effective price hike for customers remains minor, though an adverse product mix of 4-5% will drag overall sales growth to 12% YoY in Q1. “With crude prices being +57% y-y, we expect GPM/OPM contraction of c. 115bp/65bp y-y, leading to EBITDA growth of c.7.5% y-y in 1Q,” it said, adding that while the timing of the 13% price hikes means they will contribute only 7-8% in Q1, the full mitigation impact will be witnessed from Q2 onwards. Nomura expects EPL to leverage its position as a largely B2B company to fully pass on high raw material costs via price hikes, resulting in a strong revenue growth of approximately 19.5%. “While the company would have passed on most of its inflation and will be maintaining its EBITDA per kg, we believe EBITDA margin will see some contraction (-100bp y-y), leading to EBITDA growth of 14% y-y,” it said.