Defensive Stocks With Stability and Growth to Keep on Your Radar by Nuvama

Synopsis: Investors are favouring defensive FMCG and QSR stocks for stability and growth, highlighting Nestle, Britannia, Marico, HUL, Colgate, and ITC, while Jubilant FoodWorks and Burger King benefit from strong brand equity, expansion, and operational resilience.

Investors are increasingly turning to defensive stocks in the FMCG and QSR sectors to balance stability with growth. Companies like Nestle, Britannia, Marico, HUL, Colgate, and ITC offer resilient business models, strong brand equity, and consistent cash flows, while QSR players such as Jubilant FoodWorks and Burger King benefit from expansion, operational efficiency, and customer loyalty. This focus reflects a preference for predictable earnings and long-term value creation amid market uncertainties.

Prefer Nestle, Britannia & Marico Over United Spirits

Nuvama Institutional Equities has preferred Nestle, Britannia, and Marico over United Spirits as they have more robust business fundamentals and more predictable growth profiles. 

Nestle has a diverse portfolio of fast-moving consumer goods (FMCG), is able to pass on price increases, and has an ongoing pattern of penetrating both urban and rural areas consistently.

Britannia holds a dominant market position in the bakery segment, has significant brand equity, and places a strong emphasis on selling high-margin products. Therefore, the company has consistent revenue and margin growth.

Similar to Britannia, Marico has ample opportunity for sustainable growth and cash flow visibility, as Marico operates in multiple categories, including personal care and edible oils, sells through strong brands, and has a strong focus on innovation and rural expansion.

In contrast, United Spirits continues to struggle due to government regulatory pressures, a high level of debt, and increased margin volatility in the alcoholic beverage industry, making this investment marginally more risky. Overall, Nuvama believes Nestle, Britannia, and Marico will provide a higher degree of stability, predictability in earnings, and long-term creation of value in the consumer sector.

Restaurant Brands Deal 

Restaurant Brands Asia Limited’s proposed acquisition by Inspira Global is a positive development for the company, as it brings in a well-capitalised, India-focused promoter with deep operating experience in the QSR space. 

The transaction ensures a clean promoter transition with the complete exit of Everstone-backed QSR Asia, while also strengthening RBA’s balance sheet through significant primary capital infusion via equity and warrants. 

At an acquisition price of Rs. 70 per share, implying a premium to the prevailing market price, the deal reflects confidence in RBA’s long-term growth potential. The planned infusion of ~Rs. 1,500 crore provides financial flexibility to accelerate store expansion, improve unit economics, and invest in brand-building, technology, and supply-chain efficiencies, while maintaining continuity of the existing management team and operational structure.

Positioning of Burger King

Burger King’s value-led, mass-premium positioning in India underpins its growth story, supported by competitive pricing, localised menus, and strong digital and delivery capabilities that have driven expansion to 575+ outlets.

Key monitors ahead include same-store sales growth, momentum in value platforms, improvement in restaurant-level margins, and disciplined expansion across metros and tier-2/3 cities. Inspira Global’s QSR operating expertise and capital discipline are expected to aid profitability while sustaining growth, strengthening Burger King India’s long-term value creation outlook.

Jubilant FoodWorks Is the Top Pick in the QSR Space

In the context of India’s QSR stocks performing poorly across over the past months, Nuvama institutional equity ED Abneesh Roy states that Jubilant FoodWorks (Jubilant), with the strongest brand equity compared to other competitors within the same segment, is best suited to succeed. In addition, unlike many other large fast food brands, Titan is a stronger investment than all QSRs combined within the retail space.

The success of Jubilant is directly linked to its position of strength as a leader in the pizza category within India, through the brand equity of Domino’s, which is unmatched in its scale within the pizza category. 

The excellent brand reputation established by the Domino’s brand, in conjunction with the company maintaining its ability to continue to deliver superior quality and affordable prices to consumers at all times during periods of economic downturn, gives Jubilant a significant advantage over competitors during these times when the demand for quick service restaurants and their products will remain depressed.

HUL & Colgate Are at Attractive Valuations Now

Hindustan Unilever (HUL) and Colgate-Palmolive’s valuation multiples are at attractive levels for long-term investors. HUL operates in a diversified Fast-Moving Consumer Goods (FMCG) space with a strong brand, having established a strong presence in both rural and urban areas.

As the leading provider of oral care products, Colgate has established itself as a dominant player in the market and enjoys significant pricing power, strong brand equity, and stable demand for its products, leading to sustained revenue and earnings.

ITC Ltd

ITC’s current valuation multiple is now perceived to be reasonable due to its well-known brand strength, long-term stable annual cash flows, and defensive segmentation between FMCG, cigarettes, and hotels. The company is expected to continue increasing its prices over the next two to three years, although volumes have fallen off gradually.

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