In s titu tio n a l E q u itie s

Consumer Sector - Discretionary

06 January, 2022

Discretionary demand momentum improves in 3Q; Concerns looming over 4QFY22 Vishal Punmiya
Through this update, we present our 3QFY22 estimates for our Consumer Discretionary universe (Sub-sectors
covered: Paints, Alco-Bev and QSR). After resumption of recovery in discretionary consumption in 2QFY22, the
Research Analyst
demand momentum for the same accelerated in 3QFY22. We expect growth in our consumer discretionary vishal.punmiya@nirmalbang.com
coverage to outpace growth in our FMCG coverage in 3Q as discretionary goods, services and out-of-home +91-22-6273 8064
consumption (supported by festive season and some pent-up demand) picked up pace, led by improved
mobility. Similar to 1QFY22 and 2QFY22, we have highlighted the 2-year CAGR (refer exhibit 1, 3, 4 & 5) for
Videesha Sheth
3QFY22 in most of our comparisons for the growth numbers to make better sense. We expect overall revenue
of our consumer discretionary coverage universe to grow by 18.5% in 3QFY22 over 3QFY20 (2-year CAGR), Research Associate
driven by Paint companies. Our Alco-Bev coverage saw revenue recover in 2QFY22 to pre-covid level and we videesha.sheth@nirmalbang.com
expect them to post revenue growth of 3.8% in 3QFY22 over 3QFY20. The QSR sector will surpass 3QFY20 +91-22-6273 8188
levels and is likely to record 8.5% growth on 2-year CAGR basis. As highlighted in our recent note, inflation
3QFY22 Result Preview

continued to remain a cause for concern in 3QFY22. However, while there may be QoQ improvement in gross Note: We will revisit our full year earnings
margin in some cases, on a YoY basis, gross margin for most companies will remain under pressure. estimate and target price post the results
Accordingly, we expect EBITDA margin for our coverage universe to contract by >400bps YoY. EBITDA and
adjusted PAT (APAT) for our discretionary coverage universe is likely to improve by ~3.1% YoY and ~5.2% YoY,
respectively. However, consumption may be affected in 4QFY22 on account of various states imposing
restrictions due to resurgence in covid cases. To watch out for in 3QFY22: Within Discretionary, we expect both
Paint companies to post +25% sales growth on 2-year CAGR basis. QSR players should also see strong
sequential growth with improvement in dine-in. Preference: Consumer Discretionary in our coverage seem to
be fairly priced largely on a one-year forward basis. In the Consumer Discretionary space, we currently have
Buy rating on WDL but also remain structurally positive on JUBI, UNSP and APNT over the medium-term.
Paint sector: On a 2-year CAGR basis, paint companies have remained resilient (in both revenue as well as volume
terms) despite the pandemic and we expect the trend to continue in 3QFY22. Strong demand along with expectation of
some higher stocking by dealers in anticipation of price hikes, will support strong volume in 3QFY22. Similar to 1HFY22,
metros/tier-1/tier-2 cities are likely to grow at a much faster pace compared to tier-3/tier-4 cities, which will also
contribute to improvement in the mix. However, persistently steep inflationary pressure has resulted in paint companies
taking staggered (but sharp) price increases during 3QFY22 never seen before. On YTD basis, the price hikes taken by
both the coverage paint companies for decorative paints is >20%. Demand was not affected for better part of 3QFY22
and we expect our two coverage Paint companies to record a topline growth of 31.4% YoY & 28.2%, respectively over
3QFY20 (2-year CAGR), led by pricing and volume growth. EBITDA margin for both the companies, combined, is likely
to contract by ~700bps YoY (largely led by APNT) on account of the unprecedented inflationary environment, which will
only partially be offset by price hikes (full benefit to be seen 4Q onwards), better mix, sourcing & formulation efficiencies
and some cost-control measures. But EBITDA margin is likely to improve by ~420bps QoQ. Absolute EBITDA and
APAT are likely to decline by 5.8% and 4.2% YoY, respectively.
Alcoholic-Beverages (Alco-Bev) sector: In 2QFY22, volume for UNSP was back to pre-covid level and in case of
UBL, volume was 78% of pre-covid level, but was recovering on a MoM basis. With stable on-trade demand and
improvement in off-trade demand (led by consistent recovery in footfalls in the out-of-home consumption), we expect
topline of the overall Alco-bev sector to increase by 15% YoY and 3.8% over 3QFY20 (2-year CAGR). We expect UNSP
to record 3.4% YoY volume growth and 1.3% over 3QFY20 (2-year CAGR). In case of UBL, volume is expected to grow
by 23.5% YoY and 2.5% over 3QFY20 (2-year CAGR), slightly better than UNSP due to relatively lower base two year
ago (7% volume decline in 3QFY20). On account of favourable operating leverage, we expect both the companies to
report EBITDA margin expansion of ~110bps YoY combined. EBITDA and PAT are likely to grow by 23.5% and 29.7%
YoY, respectively.
QSR sector: As per the Retailers Association of India (RAI), the QSR segment recorded 29% growth in Oct’21 vs
Oct’19 and trends in Nov’21 continued to indicate growth as well. Our QSR coverage is likely to grow by 31% YoY and
8.5% over 3QFY20 (2-year CAGR), driven by strong recovery in dine-in and continuing resilience of the convenience
channel (delivery, on-the-go and drive-thru) and takeaway. On a 2-year CAGR basis, we expect JUBI to post 4% SSG,
followed by WDL at 1.3% while SSG for BKIL should come close to normalcy (has higher mix of mall stores). Inflationary
pressures are expected to offset improvement in volume, leading to operating margin contraction of ~110bps YoY.
3QFY22E performance summary for our consumer discretionary coverage universe
Net Sales EBITDA EBITDA margin (%) PAT
Company YoY 2-yr CAGR
3QFY22E QoQ(%) 3QFY22E YoY(%) QoQ(%) 3QFY22E 3QFY21 2QFY22 3QFY22E YoY(%) QoQ(%)
(%) (%)
Asian Paints 89,268 31.5 28.3 25.8 15,622 -12.6 72.7 17.5 26.3 12.7 11,034 -10.9 85.2
Berger Paints 27,733 30.9 27.9 24.6 5,131 23.6 44.9 18.5 19.6 15.9 3,455 25.7 57.9
United Breweries 16,332 26.6 6.0 14.5 2,690 36.9 62.4 16.5 15.2 11.6 1,593 57.4 97.6
United Spirits 27,127 9.0 2.5 10.9 4,476 16.6 11.5 16.5 15.4 16.4 2,703 17.6 13.8
Jubilant Foodworks 12,581 19.0 9.0 14.3 3,271 17.4 14.4 26.0 26.4 26.0 1,490 19.1 21.6
Westlife Development 4,486 38.0 1.8 16.4 763 35.4 66.7 17.0 17.3 11.9 126 NA NA
Burger King India 3,182 95.0 18.2 29.7 446 84.9 74.1 14.0 14.8 10.4 -39 NA NA
Coverage universe 1,80,709 27.0 18.5 21.1 32,398 3.1 48.4 24.0 14.6 22.1 20,361 5.2 65.4
Source: Company; Nirmal Bang Institutional Equities Research
 In s titu tio n a l E q u itie s
Exhibit 1: Comparison of topline growth on 2-year CAGR basis: Momentum evidently improved
across discretionary companies in 3Q vs previous quarters
Company 1QFY22 v 1QFY20 2QFY22 v 2QFY20 3QFY22E v 3QFY20
Asian Paints 4.6 18.5 28.3
Berger Paints 2.4 18.0 27.9
United Breweries -26.1 -4.9 6.0
United Spirits -14.7 3.2 2.5
Jubilant Foodworks -3.3 5.5 9.0
Westlife Development -17.6 -1.4 1.8
Burger King India -16.0 8.1 18.2
Coverage universe 2.5 8.0 18.5
Source: Company; Nirmal Bang Institutional Equities Research

Exhibit 2: Sub-sector wise 3QFY22E performance summary for our coverage universe
Net Revenue EBITDA EBITDA margin (%) PAT
Sector
3QFY22E YoY(%) QoQ(%) 3QFY22E YoY(%) QoQ(%) 3QFY22E YoY(%) QoQ(%) 3QFY22E YoY(%) QoQ(%)
Consumer discretionary 1,80,709 27.0 21.1 32,398 3.1 48.4 17.9 -4.2 3.3 20,361 5.2 65.4
Paints 1,17,001 31.4 25.5 20,753 -5.8 64.9 17.7 -7.0 4.2 14,489 -4.2 77.8
AlcoBev 43,459 15.0 12.2 7,166 23.5 26.4 16.5 1.1 1.8 4,296 29.7 35.0
QSR 20,249 31.0 16.9 4,479 24.8 25.3 22.1 -1.1 1.5 1,576 71.3 61.1
Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 3: Company-wise sales growth on a base of 3QFY20

(%)
70.0
60.0
50.0
40.0
30.0
20.0
10.0
64.7
28.3

63.5
27.9

12.4

18.7

39.6
18.2
6.0

5.0
2.5

9.0

3.6
1.8

0.0
JUBI
APNT

UBL

WDL
BRGR

UNSP

BKIL

3QFY22 vs 3QFY20 3QFY22 vs 3QFY20 (2-yr CAGR)

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 4: Sub-sector wise performance summary on a normal base of 3QFY20 – Paints will
continue to outperform; Alco-bev coverage likely to post growth this quarter
(%)
70.0
60.0
50.0
40.0
30.0
20.0
10.0
40.4

18.5

64.4

28.2

17.7
7.7

3.8

8.5

0.0
Consumer Paints AlcoBev QSR
discretionary
3QFY22 vs 3QFY20 3QFY22 vs 3QFY20 (2-yr CAGR)
Source: Company, Nirmal Bang Institutional Equities Research

2 Consumer Sector
 In s titu tio n a l E q u itie s
Exhibit 5: Volume growth/SSG (2-year CAGR) for Paint companies will continue to be ahead of other discretionary companies
Vol. growth/SSG (%) 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22E v. 3Q20#
Paints (Domestic
Decorative) *1
Asian Paints 6.0 10.0 10.0 11.0 21.0 10.0 16.0 14.0 12.0 3.0 -37.0 11.0 33.0 48.0 106.0 34.0 16.5 24.5
Berger Paints 12.0 14.0 17.0 15.0 19.0 12.0 12.0 13.0 9.0 -7.0 -46.0 13.0 32.0 53.0 92.0 20.5 13.0 22.1
QSR (SSSG)
Jubilant Foodworks 17.8 26.5 25.9 20.5 14.6 6.0 4.1 4.9 5.9 -3.4 -61.4 -20.0 -1.7 11.8 114.2 26.3 10.0 4.0
Westlife Development*2 20.7 25.1 24.1 25.7 14.5 5.6 6.7 7.0 9.2 -6.9 -54.0 -40.7 -24.0 10.5 182.6 83.7 35.0 1.3
Burger King India -0.2 -5.4 -68.9 -48.6 -34.8 -4.9 NA*3 62.0 50.0 -1.1
Alco-Bev
United Spirits -14.2 -2.3 1.1 10.3 3.8 1.0 6.0 1.0 -1.8 -13.5 -49.2 -3.9 -0.8 8.1 61.0 3.5 3.4 1.3
United Breweries - - - - - - 5.0 7.0 -7.0 -21.0 -77.0 -48.0 -15.0 9.0 115.0 49.0 23.5 2.5
Source: Company, Nirmal Bang Institutional Equities Research
*1Our estimates
*2 In case of WDL, 1Q21 & 2Q21 SSG decline of 54.0% & 40.7% respectively is excluding closed stores
*3BKIL has not disclosed SSSG in 1QFY22
# Indexing against 3QFY20 on a 2-yr CAGR basis since simple average may not give the right picture

Exhibit 6: Input price movement for the quarter

Data
Commodities Key segments impacted YoY QoQ
available till
USD/INR rate Imported raw materials 31-Dec-21 1.6 1.2
Brent Crude Index Packaging & Logistics 31-Dec-21 78.0 8.8
Safflower Oil Nominal Bombay (INR/10kg) Edible oil 30-Nov-21 8.3 -8.0
Rice Bran oil (INR/10kg) Edible oil 30-Nov-21 34.5 -9.2
Foods (palm oil from the flesh of the fruit) & Others products (mainly
Malaysian Palm Oil (MYR/MT) 31-Dec-21 53.3 16.5
palm kernel oil)
Soyabean Oil Refined Mumbai (INR/quintal) Edible oil 31-Dec-21 23.6 -8.9
Wheat Prices (INR/Quintal)* Food 31-Dec-21 22.2 7.4
India WPI Wheat Flour Food 30-Nov-21 7.3 3.9
Sugar NCDEX Spot Price* Food 31-Dec-21 11.6 4.7
India WPI Tea Beverages 30-Nov-21 -23.6 -5.9
India WPI Coffee Beverages 30-Nov-21 17.3 11.8
India WPI Milk Food & Beverages 30-Nov-21 1.7 0.7
NCDEX Barley Spot (INR/quintal)* Food & Beer 31-Dec-21 63.6 13.6
India WPI Maize Toothpaste (Sorbitol) 30-Nov-21 9.7 -0.6
Glass WPI Index Packaging, particularly for Alco-bev industry 30-Nov-21 5.7 -2.2
Titanium dioxide (CNY/MT) Paints 13-Dec-21 34.3 -1.0
India WPI Phthalic anhydride Paints 30-Nov-21 28.5 14.8
India WPI Vegetables Food 30-Nov-21 1.0 42.7
India WPI Onion Food 30-Nov-21 -22.5 31.2
India WPI Potato Food 30-Nov-21 -47.0 15.6
India WPI Tomato Food 30-Nov-21 46.4 115.3
India WPI Laminate Paper Packaging 30-Nov-21 3.9 1.3
India WPI Laminate Plastic Packaging 30-Nov-21 4.3 7.5
India WPI Mfg. of corrugated paper & paperboard Packaging 30-Nov-21 11.0 0.5
India WPI Fuel & Power Manufacturing 30-Nov-21 36.4 10.6
Note: 1. YoY and QoQ change captured based on average input prices available for the quarter till date;
2. *Sugar and Wheat prices are not available for the months of April and May 2020, Barley prices from 20th March 2020 to 20th April 2020 are not available
Source: Bloomberg, Company, Nirmal Bang Institutional Equities Research

3 Consumer Sector
 In s titu tio n a l E q u itie s

Exhibit 7: Company-specific comments on performance for 3QFY22E

Company Commentary
Paint
We expect APNT to clock 16.5% YoY growth in the domestic decorative business volume in 3QFY22 led by strong
demand along with expectation of some higher stocking by dealers in anticipation of price hikes. Further, aided by
steep price hikes taken during the quarter, we build-in 31.5% YoY net revenue growth (2-year CAGR over
3QFY20: 28.3%). Inflationary environment in RMs will continue to put pressure on gross margin, but will be
APNT
partially offset by pricing action taken by the company. Accordingly, we expect ~710bps YoY contraction and
~330bps QoQ improvement in gross margin. Persistent A&SP and other operating spends will lead to EBITDA
margin contraction of ~880bps YoY to 17.5%. EBITDA and PAT are likely to decline by 12.6% and 10.9% YoY,
respectively.
We expect BRGR to clock 13% YoY growth in the domestic decorative business volume in 3QFY22. Further,
aided by steep price hikes taken during the quarter, we build-in 30.9% YoY net revenue growth (2-year CAGR
over 3QFY20: 27.9%). Inflationary environment in RMs will continue to put pressure on gross margin, but will be
BRGR partially offset by pricing action taken by the company. Accordingly, we expect ~320bps YoY contraction and
270bps QoQ improvement in gross margin. Some sustained cost-saving measures and better operating leverage
compared to the base quarter will partially offset GM contraction, leading to EBITDA margin contraction of
~110bps YoY to 18.5%. EBITDA and PAT are likely to grow by 23.6% and 25.7% YoY, respectively.
Alco-Bev
UBL is expected to report an optically high volume growth of 23.5% YoY on a base of 15% YoY decline, leading to
revenue growth of 26.6% YoY (2-year CAGR over 3QFY20: 6%). Inflationary pressure, offset by a favourable
UBL
operating leverage, is likely to lead to EBITDA margin of 16.5% i.e., ~120bps expansion. EBITDA and APAT will
also see optically high YoY growth of 36.9% and 57.4%, respectively.
We believe that UNSP will clock an overall volume growth of 3.4% YoY (2% growth in Prestige & Above portfolio
and 5% growth in Popular portfolio) on a base of 0.9% YoY decline, leading to revenue growth of 9% YoY (2-year
UNSP CAGR over 3QFY20: 2.5%). Gross margin is expected to marginally improve by ~40bps YoY and decline by
~10bps QoQ. We build in a ~110bps YoY expansion in EBITDA margin to 16.5% on account of improvement in
volume. EBITDA and APAT are estimated to grow by 16.6% and 17.6% YoY, respectively.
QSR
JUBI is likely to report SSSG of 10% YoY, leading to sales growth of 19% YoY (2-year CAGR over 3QFY20: 9%).
JUBI Rising input costs, offset by a better operating leverage, will lead to marginal EBITDA margin contraction of
~40bps. EBITDA and APAT are expected to grow by 17.4% and 19.1% YoY, respectively.
Supported by strong QoQ recovery in dine-in, we expect WDL to report SSSG of 35% YoY on a base of 24% YoY
decline, leading to sales growth of 38% YoY(2-year CAGR over 3QFY20: 1.8%). Rising input costs, offset by a
WDL better operating leverage, will lead to marginal EBITDA margin (including impact of INDAS-116) contraction of
~30bps. Absolute EBITDA (including impact of INDAS-116) and APAT are likely to report optically strong growth
and are estimated to come in at Rs763mn and Rs126mn, respectively.
Similar to WDL, we expect BKIL to report SSSG of 50% YoY on a base of 34.8% YoY decline, leading to sales
growth of 95% YoY (2-year CAGR over 3QFY20: 18.2%). Benefit from improvement in gross margin and a
BKIL favourable operating leverage will be offset by absence of cost savings (like rental waivers), leading to EBITDA
margin (including impact of INDAS-116) contraction of ~80bps YoY. EBITDA (including impact of INDAS-116) is
likely to come in at Rs446mn whereas loss at APAT level is expected to come in at Rs39mn.

4 Consumer Sector
 In s titu tio n a l E q u itie s

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5 Consumer Sector
 In s titu tio n a l E q u itie s
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6 Consumer Sector