Nomura prefers Marico, Tata Consumer, Britannia; sees price hikes in Q4FY26

FMCG stocks to buy: Nomura recommends Marico, Tata Consumer, Britannia on the back of stronger growth, investments in distribution and R&D, and brands with pricing power and premium portfolios

Fast-moving consumer goods (FMCG) companies’ margins are likely to be impacted by rising raw material prices post mid-Q3/Q4FY26F, noted Nomura. However, the brokerage believes companies may choose to take price hikes and pass on the cost inflation rather than taking a hit on margins. Further, Nomura said that the companies will be able to withstand the price hikes with no volume backlash as the demand environment is likely to improve on the back of recent goods and services tax (GST) reforms and low inflation. 

 

Thus, if raw material prices continue to rise, the product price hikes could make a comeback in Q4FY26F (which are negligible currently) and support overall sales growth.

 

The brokerage has suggested ‘Buy’ on Marico, Tata Consumer Products, and Britannia stocks for targets of ₹825, ₹1,300, and ₹6,400 per share, respectively.

 

"We prefer companies that are executing better and demonstrating: (1) superior growth (in volumes/pricing) trajectory than peers/industry; (2) investments in distribution, digitisation and research and development (R&D) capabilities to support innovative new launches; strong brands, pricing power and higher saliency of premium portfolio to stand out,” the brokerage said in its note.

 

In the year-to-date (Y-T-D) period, the Nifty FMCG index has lost 3 per cent, as compared to a rise of around 4 per cent in the Nifty 50, Bloomberg data shows.

September raw material trends: 

• Tea prices continued to decline.
• Palm oil turned inflationary in July/August.
• Copra ticked up in September on festive demand after moderating in July/August; Nomura sees this as temporary.
• Coffee spiked in August due to Brazil's weather but moderated in September.

Company-wise impact of raw material prices 

• Tata Consumer: With tea prices down year-on-year (Y-o-Y), Nomura expects Q2FY26F to see partial benefits and Q3FY26F to see full benefits of low-priced inventory (as it takes 30-45 days to flow into the supply chain). However, the recent uptrend in Arabica coffee prices may limit the margin improvement. 
• Britannia and Nestle India: Lower palm oil and wheat costs aid Q2; rising milk may limit expansion.
• Colgate-Palmolive: Continued moderation in maize and crude-linked inputs supports margins.
• Hindustan Unilever: Softer crude-linked inputs and tea help; rising palm oil and robusta coffee could offset, leading to stable/slightly better margins.
• Titan: Range-bound; studded mix helps but high gold prices and lower operating leverage may offset. 
• Godrej Consumer: Margin pressure likely in Q2 on delayed pricing; palm oil benefits shift to Q3. Indonesia remains competitive; Africa margins face higher advertising and promotion (A&P).
• Dabur: Upward trend in key inputs (e.g., amla) may weigh on near-term gross profit margin.
• Marico: Sharp Parachute price hike (60 per cent in Q2FY26), as compared to 120 per cent rise in copra, likely compresses margins.
• ITC: Leaf tobacco down 10 per cent year-on-year (Y-o-Y), but high-cost inventory to be consumed over the coming quarters, affecting cigarette EBIT margins and growth.
• Paints companies: Downtrend in Brent and quashing of anti-dumping duty on titanium dioxide should support paint makers’ margins; with no major price cuts so far, Nomura expects Y-o-Y gross profit margin expansion in Q2FY26.