Consumer Durables - Apr-Jun'22 Earnings Preview - Strong summer season, inventory level high amid commodity cost correction

Mr. Amnish Aggrawal, Director - Research Analyst at Prabhudas Lilladher.

Quick Pointers:

- Room AC segment saw strong rebound, DC refrigerator demand remains weak.

- Voltas is yet to recover lost ground, Lloyd maintained strong growth momentum

- High inventory levels with commodity prices correction; Weak rural demand.

Demand softness witnessed towards end of the quarter, due to commodity price correction (~10-15% in June month) and offset of summer season. Overall companies have been reluctant in taking price hikes. Although commodity cost correction has begun, our channel check indicate that further price hike will be inevitable going forward. Rural demand remains weak. We expect our consumer durables universe to register sales growth of 70% YoY (low base due to COVID 2nd wave). With sustained RM inflation, inability to increase prices due to weak demand and return of some discretionary costs, we expect margins to remain under pressure (+10bps QoQ) for our coverage universe. We expect EBITDA/PAT growth of 98%/ 103% YoY (low base due to COVID 2nd wave) across our coverage universe. Although we remain structurally positive on long term prospects, we see demand headwinds due to high inflation in near term

We maintain our positive stance on Consumer Durables because of low penetration and market consolidation. Butterfly acquisition will further strengthen its positioning in kitchen appliance market. We rate CROMPTON as our top pick. We believe Voltas's re-rating depends upon market share rebound in room AC segment which we expect to happen by year end. Havells's is benefitting from Lloyd's ramp-up but profitability is yet to improve which would further re-rate the stock. Weak rural demand is not favorable for Bajaj Electrical in near term. KEI/Polycab wil continue to benefit from industrial uptick.

Source : Equity Bulls

Keywords

ConsumerDurables Q1FY23 EarningsPreview PrabhudasLilladher