Dairy Volumes Surge 8% as GST Cuts Drive Revenue Growth

Market Trends

Research notes received today highlight a divergence in market dynamics between consumer staples and the power sector. In the Packaged Foods and Meats > Dairy Products and Eggs segment, the data points to a constructive outlook driven by volume acceleration. Consumer staples volumes have accelerated to +8% YoY, supported by higher grammages following GST cuts and price hikes of 5-6%. This combination is supporting near-term double-digit revenue growth expectations, despite persistent margin pressures from input-cost inflation.

The underlying mechanism for this growth is clear: aggregate revenue growth stands at c.+13% YoY (Q2FY27E), fueled by both volume expansion (+8% YoY) and pricing actions (5-6% YoY). The sector is expected to deliver a ~10% revenue CAGR over FY26-28e, with earnings projected to grow at ~15% CAGR over the same period. However, the notes caution that margin compression remains a risk due to elevated crude-linked inputs, sugar, and palm oil prices.

In the Independent Power Producers and Energy Traders > Thermal Power Generation segment, the overall read is neutral to constructive. Thermal power generators face margin pressure from elevated crude oil prices driving raw material inflation and ammonia shortages, complicating the outlook for Q2FY27 earnings. Meanwhile, the renewable energy sector is shifting focus from pure capacity addition to firm power delivery, with peak demand projected to rise from 245GW to 459GW by FY36e. Hybrid and round-the-clock tenders now comprise 86% of FY26 awards.

Dairy Products and Eggs: Volume Acceleration and Pricing Power

The research notes indicate that FMCG sector demand remains resilient in Q2FY27, with domestic volume growth across key players showing double-digit trends. The coverage universe is expected to deliver ~10% revenue CAGR over FY26-28e, despite margin headwinds from elevated crude-linked inputs, sugar, and palm oil prices. This resilience is attributed to calibrated pricing actions supporting revenue and margins amid persistent input cost inflation.

Catalysts for continued growth include festive-related demand boost expected in 3Q27, with October channel loading ahead of late Diwali. Volume growth pickup to +7-9% YoY over past four quarters vs +2-5% previously suggests a structural shift in consumer behavior. Higher volume grammages post-GST rate cuts in noodles, dairy, snack foods, hair oils, chocolates, and coffee are contributing to this trend. Product price hikes of 5-6% YoY in soaps, detergents, edible oils, oral care, snack foods, and dairy are further supporting revenue growth.

Risks to this positive outlook include margin compression from landing price hikes and annualizing benefit of GST cuts. Sharp input-cost inflation over the past couple of quarters amid West Asia conflict poses a significant threat. Elevated prices of crude-linked inputs, sugar, and palm oil continue to act as margin headwinds. Seasonal moderation in paint demand impacting discretionary spending and integration risks associated with large-scale acquisitions are additional concerns.

Specific companies discussed in these notes include Ajanta Pharma Limited (constructive read), expected to report healthy YoY and QoQ earnings growth due to greater domestic market exposure compared to global peers. ITC Ltd (neutral read) could lag peers in revenue growth performance during 2QFY27. Mankind Pharma (constructive read) is projected to deliver healthy YoY and QoQ earnings growth driven by robust domestic market presence. Divis Laboratories Limited (constructive read) is anticipated to report healthy YoY and QoQ earnings growth, benefiting from its specific market positioning. Rainbow Children'S Medicare Limited (constructive read) is expected to report healthy YoY and QoQ earnings growth supported by its specialized pediatric healthcare focus. Shaily Engineering Plastics Ltd (constructive read) is projected to deliver healthy YoY and QoQ earnings growth, likely driven by automotive component demand.

Thermal Power Generation: Margin Pressure and Firm Power Transition

Thermal power generators face margin pressure from elevated crude oil prices driving raw material inflation and ammonia shortages, complicating the outlook for Q2FY27 earnings. The renewable energy sector is shifting focus from pure capacity addition to firm power delivery, with peak demand projected to rise from 245GW to 459GW by FY36e. Hybrid and round-the-clock tenders comprising 86% of FY26 awards reflect this transition.

Power sector players are pursuing capital raising and green energy pilots with TD Power Systems launching a QIP for INR 6,000 Mn and Tata Power initiating a floating solar pilot. Nuclear power is at an inflection point post-Shanti Bill 2025, offering long-term structural growth distinct from conventional thermal or renewable cycles. Potential resolution of ammonia supply constraints impacting fertilizer-linked demand is a key catalyst.

Data centre RE capacity demand growing from 16.1GW in CY26e to 32.4GW in CY30e presents a significant opportunity. FDRE tariffs trading at ~2x utility solar plus BESS rates highlight the value proposition of firm power. TD Power Systems launched QIP to raise up to INR 6,000 Mn at floor price of ₹775.35/share. Tata Power partnered with Ocean Sun for a 300-kWp floating solar pilot at Mulshi reservoir. Shanti Bill 2025 enabling private participation in nuclear sector is another notable development.

Risks include sustained high crude oil prices exacerbating input cost inflation. CTU curtailment impacting near-term earnings for specific projects and regulatory hurdles in nuclear licensing are potential challenges. Long gestation periods for project completion add to the complexity of the investment landscape.

"The renewable energy sector is shifting focus from pure capacity addition to firm power delivery, with peak demand projected to rise from 245GW to 459GW by FY36e."

What to Watch

Festive-related demand boost expected in 3Q27, with October channel loading ahead of late Diwali. Potential resolution of ammonia supply constraints impacting fertilizer-linked demand. Regulatory developments related to Shanti Bill 2025 enabling private participation in nuclear sector.

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Published by FinBizNet Desk. This article is market data and research for educational purposes only; it is not investment advice, a recommendation, or a solicitation to transact. FinBizNet is not a SEBI-registered investment advisor. Please consult a registered advisor before making investment decisions.