Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  
Google
Web www.equitybulls.com
Research

| More

Consumer Durables Sector Update Report - Inspiring recovery; rich valuation to sustain - HDFC Securities

Posted On: 2021-07-22 12:40:42 (Time Zone: IST)


Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities and Saras Singh, Institutional Research Analyst, HDFC Securities

The consumer durable sector has seen robust recovery in H2FY21, much better than ours as well as the street's expectation. The category leaders demonstrated a strong print in FY21, both in terms of revenue and margin. The strong earnings show justifies the sharp rerating of companies in FY21 (our coverage universe witnessed ~20% P/E rerating vis--vis the company's own past three-year average). Although the second wave decelerated the momentum, it was not as severe as in the first wave (in the previous year). Our channel checks suggest strong recovery in Jun-21 for electrical and cooling products. Revenues of most companies are expected to fall by ~15% in Q1FY22 over Q1FY20 vs. the 50-60% YoY decline in Q1FY21. Our checks further suggest recovery would be strong in July too and sustain in the coming quarters. This improves our confidence in our earnings estimates and we expect leading companies to sustain the earnings show. Rich valuations will sustain too, while for some companies, they may even expand. We maintain our BUY rating on Crompton and ADD on Havells, Voltas, V-Guard, Symphony, and TTK Prestige.

Recovery across B-B and B-C: Most categories have seen recovery, post the easing of lockdown restrictions in June 2021. Both B-B and B-C are seeing strong traction, led by healthy underlying demand, while category leaders are gaining market share. B-B business was a drag in FY21, despite which, leading companies could deliver healthy growth in FY21 due to strong growth in B-C. However, B-B seems to be in a good shape now and we expect the momentum to sustain in FY22. We maintain our view that appliance sector would grow through multiple drivers like penetration, housing demand, industrial Capex, convenience, and cheap finance.

Electrical products seeing better traction: The electricals products saw robust revenue growth in H2FY21, led by pent-up demand, work-from-home demand and price hikes. In FY21, the large brands managed to gain market share from fringe players, a trend that our channel checks suggest may continue for the coming quarters. It augurs well for companies like Crompton Consumer, which gained market share in the fan category. While this segment saw demand disruptions in Q1FY22, our channel checks suggest Q1FY22 revenue would be around 85-90% of Q1FY20 (vs. the 45-50% YoY dip in Q1FY21).

Demand from the north supports cooling products: Cooling products continued to see demand from pre-buying activities in Q4FY21, in anticipation of a strong summer season. However, with the second COVID wave, the demand was impacted from the second week of April. According to our channel checks, the RAC saw strong demand in Jun-21. Recovery in the north supported the overall demand. We expect revenues of the overall industry to decline ~20- 25% in Q1FY22 over Q1FY20, vs. the 60-65% YoY decline in Q1FY21.

Price hike to protect margin: Despite the commodity inflation in H2FY21, companies expanded EBITDA margin, driven by price hikes, op-lev, cost controls, and inventory gains. Raw material inflation sustained in Q1FY22 also, leading to further price hikes in June and July, covering the current commodity inflation. We expect EBITDA margin to be protected in FY22.

Near-term outlook: Pent-up demand (most seasonal categories missed out massively in the previous two seasons), work-from-home (to support convenience driven categories), improving housing activities, and resumption of Capex will sustain strong revenue traction in the coming quarters too. Leading companies have taken price hikes to pass on the raw material inflation, while restoration of operational costs will be compensated for by op-lev. Hence, EBITDA margin will remain healthy in the coming quarters. The earnings potential will sustain the rich valuations, market share gain will be the key monitorable for stock performances.


Click here to send ur comments or to feedback@equitybulls.com

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.





Other Headlines:

Shangar Decor Ltd Q2FY22 net profit at Rs. 6.06 lakhs

Maintain SELL on Asian Paints - Demand rebound strong; profitability cut steeper - HDFC Securities

Mphasis - 2QFY22 Result Update - Growth Resiliency Continues; Raise Target Price - Reliance Research

Gateway Distriparks - Rail continues to drive earnings - ICICI Securities

JSW Steel - Start of EBITDA contraction cycle - ICICI Securities

Shoppers Stop - Beneficiary of faster than expected recovery - ICICI Securities

Asian Paints - Q2FY22 Result Update - ICICI Securities

TVS Motor Company - EVs now at the center of its global ambitions - ICICI Securities

Havells India - Strong demand across regions; profitability likely to be muted in H2FY22 - ICICI Securities

Tata Communications - Rising visibility on revenue growth - ICICI Securities

Angel Broking - Business momentum intact for strong earnings growth - ICICI Securities

Q2FY22 Result Update - Rallis India - ICICI Direct

Q2FY22 Result Update - Navin Fluorine - ICICI Direct

Q2FY22 Result Update - Shoppers Stop - ICICI Direct

Company Update - Mastek Ltd - ICICI Direct

Q2FY22 Result Update - JSW Steel - ICICI Direct

Q2FY22 Result Update - VST Industries - ICICI Direct

HDFC Life Insurance - Q2FY22 First Cut - ICICI Direct

Federal Bank - Q2FY22 First Cut - ICICI Direct

Company Update - Taj GVK Hotels - ICICI Direct

Q2FY22 Result Update - Indian Hotels - ICICI Direct

Inox Leisure - Q2FY22 First Cut - ICICI Direct

Supreme Industries - Q2FY22 First Cut - ICICI Direct

Q2FY22 Result Update - Biocon Ltd - ICICI Direct

PVR Ltd - Q2FY22 First Cut - ICICI Direct

Q2FY22 Result Update - Asian Paints - ICICI Direct

Quant Pick - RBL Bank - ICICI Direct

Q2FY22 Result Update - IIFL Securities - ICICI Direct

Q2FY22 Company Update - Bank of Baroda - ICICI Direct

Q2FY22 Result Update - Syngene International - ICICI Direct

Company Update - Sonata Software - ICICI Direct

Q2FY22 Result Update - Gateway Distriparks - ICICI Direct

Q2FY22 Result Update - Tata Communications - ICICI Direct

Q2FY22 Result Update - Havells India - ICICI Direct

Mphasis - 2QFY22 Result Update - Growth Resiliency Continues; Raise Target Price - Reliance Research

Maintain ADD on Havells India - Outperformance continues; miss on margin - HDFC Securities

Indraprastha Gas - Company Update - EV vs CNG; TCO Economics Favour CNG - Reliance Research

FinTech Playbook - Discount Brokers - 'Nudging' the long tail of standalone brokers - HDFC Securities

Tata Communication - Revenue growth remains muted - YES Securities

Havells India Ltd - Q2FY22 Result Update - YES Securities

ICICI Lombard General Insurance - Q2FY22 Result Update - YES Securities

Syngene International Ltd - Lack of near term triggers - YES Securities

Mphasis - Q2FY22 First Cut - YES Securities

IndiaMART InterMESH - Q2FY22 First Cut - YES Securities

Sterlite Technologies - Q2FY22 First Cut - YES Securities

Can Fin Homes - Q2FY22 First Cut - YES Securities

Havells India - 2QFY22 Result Update - Strong Revenue Growth; Higher Commodity Prices Impact Earnings - Reliance Research

TVS Motor - 2QFY22 Result Update - Healthy Exports Coupled with New Launches to Aid Higher Margins - Reliance Research

Maintain SELL on Jubilant FoodWorks - No big fireworks unlike in other discretionary names - HDFC Securities

Sonata Software - Strong execution - HDFC Securities


Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020