Nomura bets on Marico, Tata Consumer, Britannia on hopes of margin boost

Brokerage expects gross-profit-margin (GPM) improvement in Q2FY26 but warns that month-on-month raw-material (RM) upticks could revive price hikes from Q4

FMCG (fast moving consumer goods) companies could see an improvement in their gross profit margin in the second and third quarters of fiscal 2026 (Q2FY26 and Q3FY26), according to a note by Nomura, amid soft commodity prices. 

 

The research and brokerage house, however, cautions that the raw material (RM) costs have begun to edge up month-on-month (M-o-M). A sustained rise, it warns, could prompt a return of product price increases — currently negligible — possibly from the fourth quarter (Q4).

 

The brokerage has suggested ‘Buy’ on Marico, Tata Consumer Products, and Britannia 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 1.3 per cent, as compared to a rise of around 4 per cent in the Nifty 50, ACE Equity data shows.  Track Stock Market LIVE Updates

August snapshot: Winners and losers

Nomura highlights several commodity-specific trends for August. Copra — which had risen more than 100 per cent year-on-year (Y-o-Y) earlier — has finally started to ease, while tea prices have moderated; both developments should help margins at Marico and Tata Consumer Products, the brokerage says.

 

By contrast, palm oil turned inflationary after July and continued to firm in August. Benefits from earlier lower palm-oil prices are likely to show up in Q2 margins for Britannia and in Q3 margins for Godrej Consumer Products and Hindustan Unilever, but those gains could prove short-lived if palm oil remains elevated.

 

Coffee prices, after a sharp correction in recent months, have again started rising. Although coffee remains down double-digits Q-o-Q, it is sharply up M-o-M; Nomura expects Nestlé to refrain from raising product prices amid this volatility, though the company could benefit from buying lower-priced RM while rising milk costs may cap margin upside.

 

Amla has firmed, which could squeeze Dabur’s margins or trigger a price increase. Prices of crude oil, packaging, and wheat remain lower Y-o-Y but have inched up Q-o-Q; Nomura does not expect a material impact yet but remains watchful.

 

High gold prices are likely to weigh on jewellery footfalls and new buyer growth, while a higher base from the customs-duty cut is being cycled. For ITC, elevated leaf-tobacco prices Y-o-Y — despite some softening — will continue to weigh on cigarettes’ earnings before interest and taxes (EBIT) growth.

Outlook: Pricing and margins

Nomura said that the demand environment for FMCG companies is looking conducive and is showing early signs of improvement; coupled with a low overall inflation backdrop, consumer companies are unlikely to see material margin erosion this time round.

 

On the pricing front, given the moderation in most key commodities, Nomura does not foresee fresh price cuts or hikes in the near term. Instead, it expects companies to channel input-cost softness into improving GPM, even as earlier price increases gradually fade.