Amidst a backdrop of sluggish demand, margin pressures, and heightened competition in the consumer sector, Jefferies has highlighted early signs of improvement in certain areas. The brokerage observed that while some issues such as competition may linger, factors like demand recovery and margin stabilisation offer scope for optimism.
In its latest note, Jefferies identified Varun Beverages, Hindustan Unilever, and Asian Paints as top contrarian ideas for the next 12 months, citing a favourable risk-reward profile despite persistent challenges in the broader space.
Challenges in the sector
Jefferies noted that several consumer-facing firms have been weighed down over the past few quarters by slowing growth, intense competition, and shrinking margins. These headwinds have translated into considerable share price corrections, with some stocks down by as much as 25–30 percent from their peaks. Jefferies believes, however, that many of these risks are already priced in and sees limited downside from current levels.
The impact of inflation and input cost fluctuations has varied across companies and categories, Jefferies noted. Many firms adopted a cautious approach, delaying pricing decisions, which led to pressure on gross margins. Despite this, Jefferies said EBITDA impact has been relatively limited in most cases.
Jefferies pointed out that incumbent players in several categories have faced fierce competitive pressure, which has affected growth, market share, advertising investments, and profitability. These pressures have made it difficult for many companies to maintain their earlier dominance.
Stock-Specific Opportunities Identified:
Despite sectoral challenges, Jefferies believes select consumer names offer strong upside potential:
Varun Beverages: Jefferies maintained a Buy rating on the stock but cut its price target to ₹560 from ₹650 earlier. While the summer season underwhelmed and competition from Reliance’s Campa Cola intensified, Jefferies believes the stock’s current valuation of 27x EV/EBITDA and 43x P/E (FY26 basis) makes it attractive despite potential earnings downgrades.
Asian Paints: the brokerage has issued a double-upgrade on Asian Paints to “buy” from its earlier rating of “underperform” with its price target raised toRs 2,830 from ₹2,000 earlier. The firm highlighted that pressures from Grasim’s Birla Opus and volatile input costs have largely played out. With management stabilisation and easing competitive intensity, a gradual earnings recovery is expected from FY26.
Hindustan Unilever (HUL): Despite a flat share price over the last five years, Jefferies retained a Buy rating with a price target of ₹2,950. The brokerage noted that HUL’s renewed focus on growth over margins and strong parent company backing position it for a turnaround.
Overall, Jefferies acknowledged that none of these stocks are cheap by conventional valuation metrics, but argued that the risk-reward remains compelling. A cyclical recovery in fundamentals could lead to meaningful upside, while downside risk is limited if the recovery thesis does not play out. As such, Varun Beverages, HUL, and Asian Paints emerged as Jefferies’ top contrarian picks in the consumer space for the next 12 months.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
