DMart to Swiggy: CLSA picks top stocks to ride India's consumption story

Global brokerage CLSA has identified Avenue Supermarts Ltd., Eternal Ltd. and Varun Beverages Ltd. as its three high-conviction 'Outperform' ideas in a new report outlining 14 stocks based on its latest five-factor framework for assessing India’s consumer landscape.

 

Analysts also rated Amber Enterprises Ltd., Eicher Motors Ltd., Mahindra & Mahindra Ltd., Radico Khaitan Ltd., FSN E-Commerce Ventures Ltd, Swiggy Ltd. and Titan Ltd. as 'Outperform', while assigning 'Underperform' ratings to Godrej Consumer Ltd., Hindustan Unilever Ltd., Marico Ltd. and Jubilant Foodworks Ltd.

 

In the report, CLSA introduces a five-factor framework built around consumer cohorts, affordability and profit-pool potential to determine companies best positioned to benefit from rising domestic incomes. The framework assesses revenue exposure to the largest incremental consumer cohorts between FY25-35, revenue exposure to the biggest income pools, affordability versus domestic peers, affordability versus global peers and profit-pool potential.

 

CLSA noted that firms with high exposure to fast-growing cohorts and large profit pools warrant stronger long-term growth assumptions in its discounted cash-flow valuations, citing Eternal and Nykaa as examples. In contrast, companies facing slower-growing cohorts, rising competition or already-high profit-pool shares are modelled with lower growth expectations, such as Hindustan Unilever and Godrej Consumer. 

 

Beyond its core consumer coverage, the brokerage also includes M&M and Eicher Motors from autos and Amber from electronics, given India's importance in cars, motorcycles and appliances.

 

CLSA adds that consumer-cohort analysis provides a more accurate gauge of demand and affordability trends than gross domestic product per capita, and highlights slower expected growth for the urban mass cohort due to a mismatch between organised job creation and available manpower.

 

The framework feeds into CLSA’s 25-year DCF models, incorporating assumptions on category size, addressable cohorts, competitive intensity, market access and other structural advantages to assess long-term growth and profitability potential.

 

The brokerage flagged several risks that could challenge its assumptions of rapid income growth among urban cohorts. These include slower-than-expected job creation in manufacturing and services, as well as potential job losses in sectors such as IT, IT services and manufacturing due to technological shifts like generative AI. 

 

CLSA noted that India’s largest consumption categories, those with market sizes above $1.5 billion, are concentrated in beauty and personal care products such as soaps, conditioners, moisturisers, toothpaste and colour cosmetics, as well as in alcoholic and non-alcoholic beverages, edible oils, tea, instant noodles and confectionery.

 

The brokerage expects slower growth in categories that already have high penetration, including sweet biscuits, soaps, toothpaste, flavoured powder drinks, powder detergents, home insecticides and toothbrushes, over CY24-34 and CY24-50.  "High per-capita consumption and shift to parallel use-cases because of rising urbanisation and deep existing penetration are key drivers of their relatively sluggish pace."