Sector Updates

Consumption trends in Q4FY25E remained mixed, with staple companies expected to report marginal volume growth. Inflationary pressures on discretionary spending weighed on major FMCG players such as HUL, Nestlé India, Britannia, and Tata Consumer Products.

As per AIOCD and AWACS data, in January 2025, the Indian pharmaceutical market (IPM) grew 8.7% YoY, led by price hikes (+5.3%) and new launches (+2.6%), but posted muted volume growth (+0.9%). In February 2025, the Indian pharmaceutical market (IPM) grew 7.5% YoY, driven by price hikes (+5.2%) and new launches (+2.7%), while volume declined marginally (-0.2%).

We anticipate industry credit growth to moderate to ~11.0% by end of FY25E, marking a sharp decline from 20.2% in FY24. This slowdown is largely attributed to a deceleration in unsecured loan expansion and persistent stress in the Microfinance (MFI) segment, which has prompted a more cautious lending approach across the sector.

YoY organic growth is expected to decelerate from ~4.5% in 2QFY25 to 0.5% in 4Q. Implies a US$2.6bn annualized organic revenue loss

Cement prices exhibited early signs of stabilization, following a subdued pricing environment through October and November 2024, driven by weak demand dynamics. However, a turnaround materialized in December, supported by rural housing expansion, and infrastructure-driven demand,
leading to a moderate recovery in prices.

In February, Consumer Price Index (CPI) inflation eased to 3.6%, while Wholesale Price Index (WPI) inflation ticked up to 2.4%. The Manufacturing Purchasing Managers' Index (PMI) decreased compared to the previous month, while Services PMI witnessed a surge.

The unemployment rate rose in February. Foreign institutional investments (FII) and and mutual funds (MF) witnessed outflows during the month. Crude oil prices declined on a MoM basis in February.

Demand: Est. at 4,448 tons in CY2023 (valued at $306 Bn. at average value of $1,940 per ounce) bifurcated as
primarily (a) Jewellery: 49% (b) Bars & Coins: 27% (c) Central Banks: 23%

Valuation & View

We prefer TVS Motors and Hero Motocorp in 2Ws; M&M (non-coverage) as a play in the PV/LCV/tractor segment, followed by Maruti in PVs. We also keep a close watch on Ashok Leyland and Eicher (VECV) in the CV space for potential volume growth.

Top Conviction Ideas (Auto and Auto Ancillaries) - Hero Motocorp Ltd, Ashok Leyland, Uno Minda, Sansera Engineering

Top Conviction Ideas (Retail) - Trent, Ethos.

Top Conviction Ideas (FMCG) - Varun Beverages, DOMS Industries

In Q3FY25, companies within our pharma coverage revenue, EBITDA and Adj. PAT exceeded our expectations by 1.6%/3.7%/9.8%, respectively. The EBITDA margin and Adj. PAT margin outperformed our estimates by 53 bps and 133 bps, respectively.

Top Conviction Ideas (Infra-Road & Others) - HG Infra Engineering Ltd, Kalpataru Projects International Ltd, J Kumar Infraprojects Ltd.