Tata Consumer, HUL to Nestle: Kotak cuts target prices for 8 FMCG stocks amid weak earnings outlook for the sector

The subdued demand for consumer goods is expected to persist over the next few quarters, with analysts anticipating a continued slowdown in urban consumption, a lack of pickup in rural growth, and a steady rise in key commodities such as palm oil, tea, and coffee, which they believe will exert margin pressure for at least one to two quarters.

Domestic brokerage firm Kotak Institutional Equities noted that the ongoing weakness in urban consumption would weigh on the volume and value growth of FMCG companies in 4QFY25E and 1HFY26E. Rural demand, which contributes about one-third to FMCG sales, remains stable and is likely to outperform urban demand for the fifth consecutive quarter.

The brokerage expects inflationary pressure in certain commodities (palm oil, tea, and coffee) to continue to exert margin pressure for another quarter or two. Therefore, it has factored in weak consumption persisting into 1HFY26E and maintained moderate estimates for FMCG companies across the sector.

It also trimmed earnings estimates and valuation multiples across multiple FMCG stocks, reflecting expectations of continued consumption weakness in 1HFY26E. For Hindustan Unilever, estimates were cut by 0-3%, with the fair value revised to ₹2,450 (48x FY27E P/E, down from 50x).

Nestlé saw a similar 0-3% estimate cut, with its FV reduced to ₹2,280 (57x FY27E P/E, down from 60x). Britannia's estimates were lowered by 0-3%, revising its FV to ₹5,025 (46x FY27E P/E, down from 47x). Dabur faced a 0-1% reduction, bringing its FV to ₹540 (41x FY27E P/E, down from 43x).

Godrej Consumer Products saw 1-3% estimate cuts, with its FV lowered to ₹1,250 (48x FY27E P/E, down from 49x). Marico had a 0-2% trim in estimates, maintaining its FV at ₹635 (43x FY27E P/E).

Colgate-Palmolive saw a 0-3% reduction, revising its FV to ₹2,600 (43x FY27E P/E, down from 44x). Lastly, Tata Consumer Products faced the largest cut of 2-4%, with its FV reduced to ₹1,025 (48x FY27E P/E, down from 49x). The revisions reflect a cautious stance on the sector amid subdued demand trends.

Godrej Consumer is Kotak's preferred pick

Godrej Consumer Products remains the brokerage’s preferred pick. According to its channel checks, the current season for the company's household insecticides (HI) business is shaping up well. The company’s Ready-to-Use No-Fumes Liquid Vaporizer (RNF LV) has started to show encouraging results, with the company gaining 200 basis points (bps) of market share in the regions where it has been launched.

Despite near-term margin weakness, Kotak believes Godrej can restore profitability in its soap segment through gradual price hikes (with high single-digit increases implemented so far) and/or a potential easing of palm oil prices once the new crop arrives by 2QFY26E.

The company shares have declined by approximately 25% over the past six months, primarily due to a steep rise in palm oil prices, competitive pressures in the soap segment, and concerns surrounding its HI business.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.