BSE Consumer discretionary index hits 52-week low; Bata, DMart down over 3%

For consumer retail companies, we expect profit margins to remain under pressure led by higher discounting sales and sub-optimal pick up in revenue, says Antique Stock Broking.

Shares of consumer discretionary companies were under pressure on Tuesday on concerns over lower-than- expected earnings for April-June quarter (Q1FY19), due to a tough macro-economic environment.

Titan Company, Bata India, Jubilant FoodWorks, Asian Paints, Avenue Supermarts (DMart), Symphony, Voltas and Page Industries from the S&P BSE Consumer Discretionary Goods & Services index were down by more than 2 per cent on the BSE.

At 10:56 am, the consumer discretionary index was down 1.4 per cent at 3,397 level, as compared to a 0.57 per cent decline in the benchmark S&P BSE Sensex. The index hit a 52-week low of 3,388, falling below its previous low of 3,392 hit on October 26, 2018 in the intra-day deal.

Among individual stocks, Titan Company tanked 14 per cent to Rs 1,078 after the company reported a lower-than-expected growth in jewellery business during Q1FY20 on the back of tough macro environment and weak consumption trend.

The stock of Tata Group Company has reported its sharpest intra-day fall in more than two-years. Earlier, on November 9, 2016, Titan Company had fell 15 per cent in intra-day deal on the BSE.

Titan Company said in its quarterly update said "the quarter witnessed a tough macro-economic environment with consumption being hit. Very high gold prices particularly in June also impacted growth in the jewellery industry. Against this background, the Company's growth particularly in the jewellery segment was lower than planned even though the gains in market share were sustained."

“Current economic slowdown is likely to impact the quarterly run-rates however Titan is likely to return the higher growth path once the consumer spending picks up in the economy. EBITDA (earnings before interest, tax, depreciation and amortization) margins being capped at the current levels as company is undergoing expansion phase, where operating leverage gains are likely to be offset by higher investments across the brands,” analysts at Reliance Securities said in a company update.

“Consumer fast moving consumer goods (FMCG) companies have continued to witness moderation in rural demand during the quarter. Expectations of a delayed and deficient monsoon, is expected to have affected rural sentiment during the quarter,” analysts at Antique Stock Broking said in Q1FY20 earnings preview.

For consumer retail companies, we expect profit margins to remain under pressure led by higher discounting sales and sub-optimal pick up in revenue. In grocery retail, we expect gross margin to decline moderately due to increase in discounting by DMart fueled by rise in competitive pressure (higher discounting) by online players, it added.

“Higher input cost and other expenses are likely to keep EBITDA growth to be muted for Asian Paints, Nestle, Britannia and Colgate; however, Marico and Dabur are likely to report faster EBITDA growth on the back of softening input cost,” Reliance Securities said in a results preview note.