By Deeksha JanianiFor a time, it was good: optimistic growth predictions for India helped drive a market rally over the past three months. But the world is becoming sharply volatile, and multiple global factors are now rocking the boat. Russia's gas cutoff has caused an energy crisis in Europe, threatening a deep recession, and US Fed Reserve Chairman Jay Powell announced an interest rate hike of 75 bps on September 21.
Higher US interest rates have made US treasury assets more attractive, and foreign investors renewed selling Indian equities. The "fear index" Nifty Vix is back up to June levels.
However amid this gloom, the Indian consumer story is a bright promise. Indians are preparing for get-togethers and celebrations, with big spending plans this festive season.
In this week’s Analyticks:
- Festive plans cheer travel, home improvement and jewellery sectors
- Screener: These stocks are holding steady, with high-momentum and strong EPS growth predicted in FY23
Let’s get into it.
The great Indian festival season is here: What’s in store for tourism, home improvement and jewellery?
The Indian festive season kick-started with the arrival of Ganesh Chaturthi and Onam in August-end. Now, it’s in full swing with the onset of Navratri. For the first time in two years, people will be able to gather for the Garba Utsav without restrictions - no mandatory masking, no one checking your Covid certificate at the door, no limits on the number of people.
Indians are itching to get into their party clothes, and are ready to loosen their purse strings. According to a survey undertaken by LocalCircles, consumer spending during the festive season is expected to hit $32 billion this year, higher than both 2020 and 2021. Although this is below the pre-Covid level (2019) of $37 billion, this will boost India Inc in an otherwise inflationary and tough global environment.
24% of respondents in this survey plan to spend on travel and tourism in this season - the highest among all categories. Jewellers and home improvement players will also see the benefit of higher consumer spends.
Hotels and Tourism sizzle, as consumer segments come alive
When the worst of the pandemic got over in March 2022, short-haul travel became the top priority for millennials. Businesses also restarted events and conferences as employees were back in offices.
By the summer of ’22, there was high traction visible across both leisure and corporate travel segments. The occupancy rates and revenue per available room of the hospitality sector crossed pre-pandemic levels in Q1FY23 thanks to the demand rebound in metros.
According to the management of Indian Hotels, robust demand especially in the corporate segment continued in July and August, despite the seasonal weakness. Now, with consumers willing to spend more on travel, the demand outlook from September to November also looks strong.
Traveller mix shifts towards richer Indians
Overall festive spends this year are being driven by higher income groups, as they saved a lot of money in the work-from-home era, according to LocalCircles.
This may also be true for the travel sector.
Let’s consider some hard facts here: the traveller mix is changing. In Q1FY23, the premium chains of Indian Hotels like ‘SeleQtions’ and ‘Vivanta’ saw over20% growth in occupancies while mid-segment chains like ‘Ginger’ fell 11% compared to pre-covid levels.
The overall occupancy level of a mid-segment hotel chain like Lemon Tree has been consistently lower than that of premium and luxury players like Indian Hotels and EIH in the past three quarters. Clearly, higher price inflation has impacted the discretionary spends of middle-income groups, while the affluent class is relatively unaffected.
Foreign travellers will also drive demand for hospitality and recreational sectors in H2FY23. According to a RateGainreport, foreign tourist arrivals in Delhi and Mumbai are likely to see double-digit MoM growth between September and November owing to the festivities and a favourable climate in India.
These demand trends bode well for an online travel agent like Easy Trip Planners. This travel startup has showcased consistent profitability in the past 10 quarters despite the pandemic. This was achieved on the strength of its ‘no convenience fee’ model and easy refunds policy. The company now looks to double its gross booking revenue to Rs 6,500-7,000 crore in FY23 and makes a good proxy play in the travel sector.
Enthused by the current travel boom, hotel chains have drawn up ambitious expansion plans. Indian Hotels looks to add 18 hotels in its portfolio this year while Lemon Tree seeks to complete a major hotel project in Mumbai.
According to Trendlyne Forecaster’s consensus estimates, annual revenues of the top three listed hotels will jump by over 60% YoY in FY23 with all of them returning to profitability.
Jewellery makers sparkle on lower gold prices, healthy demand
Women customers have also made a comeback - retail sales of jewellery have grown in double-digits in the past four months, backed by the correction in gold prices. This trend is likely to continue in the coming months as the peak festive season has begun, which will be followed by the wedding season. According to C K Venkataraman, Managing Director at Titan, the affluent class has amassed a lot of wealth in the pandemic years and are now ready to spend on high value items.
The period from Navratri upto Diwali is an auspicious period to buy jewellery in India. In order to leverage this, Tanishq, a brand owned by Titan, has launchednew collections like ‘Zoya’, ‘Aishani’, 'Chozha' and ‘Alekhya’. This is also in line with the company’s strategy to cater to more regional tastes to capture higher market share.
Kalyan Jewellers aims to spend Rs 250 to 300 crore to open 10 stores across Delhi, Maharashtra, Uttar Pradesh, Orissa and Chhattisgarh by this Diwali. Meanwhile, Titan aims to launch 50 Tanishq stores in FY23 to meet rising demand. The revenue of both these players is set to jump over 20% in FY23 with profits rising faster.
Paint companies are all set for a 'double delight'
Another major beneficiary of this festive season will be the home improvement sector, as people repaint and refurbish their houses for Laxmi Pooja. Paint makers like Asian Paints and Berger Paints already witnessed robust sales volumes in Q1FY23, backed by premium and luxury products. Such strong demand trends will continueinto Q2FY23 with the early onset of Navratri.
Demand growth is coming with lower costs - a double delight for paint companies. Pressure on the gross margins of these companies have eased up thanks to the 27% correction in crude oil prices since May 2022. Analysts predict oil prices will zoom back up towards the end of the year as China comes out of lockdowns, but Q3FY23 may still see the double benefit of low input costs and high demand. This is why analysts predict these companies’ net profit rising more than their revenues in FY23.
However, Kajaria Ceramicsis likely to suffer margin compression on account of higher natural gas prices. Nevertheless, the tile-maker is positive on the demand front and is putting up new capacities in the sanitaryware and bathware segments.
Hopes are high for a bumper festive season across consumer facing sectors in India. The promise is clear: let's see which companies are able to make the most of it.
Screener: Stocks flying high in a volatile market, with medium to high momentum score and rising EPS forecasts
With the result season just around the corner, we take a look at stocks which have a medium to high momentum score, with high EPS growth forecasts. This screener consists of 34 companies within the Nifty 500 index. The companies belong to industries like telecom services, realty, non-alcoholic beverages, two-wheelers among others.
Major stocks featured in the screener are Bharti Airtel,Phoenix Mills, Adani Enterprises, Varun Beverages and Eicher Motors. Bharti Airtel has the highest annual EPS growth forecast of 237%. According to Prabhudas Lilladher, the telecom company’s customer focused strategies along with digital investments has helped increase revenue and subscriber market share. It has a Trendlyne momentum score of 60.7, indicating that it has high buying interest and improving sentiment.
The second highest annual EPS growth forecast is for Phoenix Mills. The company saw a 316% rise in its annual EPS in FY22. According toICICI Securities, the realty player has a strong pipeline of projects which will aid its bottomline growth. It has a Trendlyne momentum score of 61.8.
Analysts see Eicher Motors clocking an EPS growth of over 65% in FY23. Axis Securitiesbelieves that lower commodity prices, improving demand and easing of supply-side constraints will aid its earnings growth.
Varun Beverages has a healthy EPS growth estimate of 88% for FY23. The demand outlook for this Pepsico franchise is strong given that its juices, energy drink and dairy segments are performing well,and it is expanding into newer markets.
You can find some popular screeners here.
