Premiumisation lifts spirits, retail and beauty, but inflation clouds consumer discretionary outlook

India’s consumer discretionary sector is likely to maintain its growth momentum in the September quarter, but rising raw material, wage, utility and rental costs could squeeze margins across several categories, according to a report by Elara Capital. The brokerage expects premiumisation to remain a key growth driver in alcobev, while improving same-store sales in quick-service restaurants, continued store additions in retail and strong beauty demand should support the broader sector.

“Growth remains steady, but margins are likely to remain strained,” said Karan Taurani, executive vice president, Elara Capital, in the brokerage’s latest consumer discretionary quarterly preview. The divergence is particularly visible within categories, with premium products gaining share even as mass-market volumes remain under pressure.

Alco-bev shapes up well

In alcobev, Radico Khaitan is expected to be among the stronger performers, with premium and above (P&A) volumes projected to rise around 29% year-on-year in Q2FY27. Growth is expected to be led by Magic Moments flavoured vodka and Morpheus whisky, with realisations rising around 0.5%. At the same time, regular volumes could decline 15% on a high base in Maharashtra and Andhra Pradesh.

Radico’s margins are expected to benefit from inventory stocked earlier. Elara expects gross margin to expand 536 basis points year-on-year to around 49%, while EBITDA margin could rise 420 basis points to 20.1%.

United Spirits , meanwhile, could see P&A volumes remain broadly flat year-on-year after declining 1.3% in Q1. A 9.5% increase in realisations is expected to drive P&A revenue, although the popular segment could decline around 22% because of policy-related pressures in Karnataka and Maharashtra. Higher advertising and promotion spending, estimated at 9.2% of sales compared with 7.6% a year earlier, could pull EBITDA margin down by around 260 basis points to 18.6%.

Beer volumes are also expected to recover. United Breweries could report around 9% volume growth on normalised channel inventory, aided by traction in Karnataka and Maharashtra and around 2% realisation growth. However, input-cost inflation could reduce gross margin by about 230 basis points, leaving EBITDA margin at around 6%, down 34 basis points year-on-year.

Premium retail powers ahead

Retail is likely to offer a more balanced picture. DMart could post around 18% year-on-year standalone sales growth, supported by 7.5% like-for-like growth, FMCG price increases and lower discounting intensity from quick-commerce players. The retailer has added around 15 stores during the quarter, taking its total to 518, up about 20% year-on-year.

Elara expects DMart’s gross margin to improve 36 basis points year-on-year to 14.6%, with EBITDA margin at around 8%, up 38 basis points year-on-year, although 36 basis points lower sequentially.

At Trent , standalone sales could rise around 18% year-on-year. Its fashion store network expanded 21.6% year-on-year, with Zudio reaching 992 stores after adding 10 during the quarter and Westside reaching 305 after four additions. However, like-for-like growth could remain in the low single digits as part of the festive season shifts into the quarter and competitors increase discounting.

Higher fabric costs are expected to weigh on gross margin, which Elara sees at 45%, down 164 basis points sequentially. EBITDA margin is estimated at 17.7%.

Nykaa stands out on growth, particularly in beauty and fashion. Elara expects consolidated revenue to rise 26.7% year-on-year, with beauty and personal care GMV increasing 25% and fashion GMV jumping 42%, helped by the Nike business. BPC take rate could decline 120 basis points sequentially to 60.1% because of seasonality, but BPC EBITDA margin is expected to improve 136 basis points year-on-year to 9.7%. Fashion is expected to remain profitable at around 0.6%, taking consolidated EBITDA margin to about 8.6%, up 186 basis points year-on-year.

QSRs regain momentum

QSRs, meanwhile, are showing signs of a sequential recovery, although inflation is likely to keep profitability under pressure. Jubilant FoodWorks’ like-for-like growth could improve to around 3.5% from 2.5% in Q1, aided by a 170-basis-point price increase and a smaller dine-in drag. Burger King India is expected to sustain Q1 momentum with around 12% SSSG, while Westlife could accelerate to 6.5% from 4.3%.

KFC could also benefit from value offers and BOGO deals, with Sapphire Foods expected to post around 8.5% SSSG and Devyani International around 4.5%, compared with 3.3% in Q1. Sapphire’s Sri Lanka business could grow 9.5%.

The recovery is also translating into continued network expansion. Jubilant could add around 65 net stores, taking its total to 2,578. Devyani could add around 30 KFC outlets to reach 824, while Sapphire could add 16 to reach 607. Burger King India and Westlife could add around 15 and 10 stores, respectively.

However, the cost equation remains a concern. Elara expects inflation in raw materials, wages, utilities and rentals to compress margins sequentially, with price hikes offering only a partial offset. Jubilant’s EBITDA margin is expected to remain around 19.4%, while Sapphire’s KFC restaurant margin could fall 168 basis points sequentially to 15.2%. Devyani’s EBITDA margin could decline 109 basis points sequentially to 15.1%.

Pizza Hut remains the weak spot, with Sapphire’s restaurant-level loss estimated at 3.1% and Devyani’s brand contribution loss at 1.8%.

Westlife’s EBITDA margin is expected to remain broadly stable year-on-year at 10.8%, although down 181 basis points sequentially, partly helped by a 1.5% price hike in September. Restaurant Brands Asia’s India EBITDA margin could fall 46 basis points sequentially to 13.8%.

The broader takeaway, according to Taurani, is that demand is not the immediate constraint for much of the sector. Rather, the ability to convert improving volumes, premiumisation and store expansion into profitable growth will be the key monitorable in the September quarter.