Nomura Sees Limited Impact of Gas Supply Curbs on Indian Consumer Firms

The impact of the ongoing conflict across West Asia can be felt across industries. Most importantly the gas supply curbs is a key factor to watch. However, international brokerage house Nomura believes consumer firms are unlikely to see a big hit as a result. They are bullish on Britannia Industries , Marico and Tata Consumer Products among consumer staples companies. Among consumer discretionary firms, Nomura is betting on Titan Company and Asian Paints . The brokerage said the impact on most consumer firms will be minimal as their exposure to gas as a production fuel is limited. Even companies that use higher levels of gas have alternative fuel options that can help them maintain output. Nomura said, “We prefer companies that are executing better and demonstrating stronger growth and investing in distribution, digital capabilities and product innovation.” Nomura’s top picks include Britannia Industries in consumer staples and Titan Company in consumer discretionary. The brokerage also highlighted Marico, Tata Consumer Products, Godrej Consumer Products, Asian Paints and United Spirits among its preferred stocks in the consumer space. Nomura in its report shows that most consumer companies such as ITC, Hindustan Unilever, Marico, Tata Consumer Products, Dabur, Asian Paints, Berger Paints and EPL have less than 10% exposure to gas as a fuel used in production. According to the brokerage house, these companies are unlikely to face any meaningful production impact due to the supply cut. Some companies, including Britannia Industries, Nestle India, Godrej Consumer Products, Colgate-Palmolive India and Kansai Nerolac Paints, have relatively higher gas exposure. However, Nomura noted that most of these companies have multi-fuel facilities and can switch to alternatives such as high-speed diesel or fuel oil, which will help limit any disruption to production. “Companies which have more than 15% exposure to gas as a fuel could potentially see some impact of lower availability of gas. We understand most of them have mitigating factors such as multi-fuel facilities (especially Britannia) and can shift to other fuels (high-speed diesel [HSD], fuel oil, etc) limiting the impact on production,” Nomura noted. Accotrding to Nomura’s estimates, Britannia has the highest gas exposure at 64%. In its regulatory filing on March 13, Britannia clarified that it has not experienced any significant disruption to operations on account of supply of industrial gas. Britannia said it has adequate levels of finished goods available across its supply chain network to meet market demand. “The Company uses various types of fuel across its manufacturing facilities viz. LPG, PNG, Biomass, Liquid fuels etc., and has the option of switching between fuels, where feasible, by making technical adjustments,” Britannia Noted in its regulatory filing. Nomura noted that while production risks remain limited, companies with higher gas exposure could face higher fuel costs if the supply shortage continues for a prolonged period. The brokerage said companies may have to rely more on alternative fuels, which are typically more expensive than natural gas. Nomura also noted that so far, none of the companies covered by them have reported production issues due to the gas supply curbs. “None of the companies under our coverage have called out any issue in production thus far, and most of them are carrying higher-than-normal fuel inventory in light of the ongoing geopolitical tensions,” Nomura said. Some companies are building higher finished-goods inventories to cushion against any potential production slowdown.