Consumer Durables Q2 . I’m ready for a good ride

Consumer durables firms are likely to report an improvement in revenue for the September quarter, and this expectation has got confidence from the recent channel checks by analysts. Sales of durable goods and white goods improved sharply during the quarter as restrictions were eased to prevent a second Covid wave of the pandemic. In fact, Indians are buying air conditioners and appliances to decorate their homes for festivals.

Voltas Limited, Blue Star Limited and Havells India Limited may see a gradual jump in revenue. “Examination of our channel indicates that July saw strong year-on-year (y-o-y) growth,” analysts at Emkay Global Financial Services Ltd wrote in a note. Certainly, a higher base resulted in a more modest increase during August. , They said. Still, a 26% increase in two months is not a big change, and early September indicators are encouraging as well. Within durables, room air conditioners showed a sharper growth than other appliances, but given the loss of key June quarter summer sales months, the benefit of this growth is limited to overall FY22 earnings.

As per Emkay’s estimates, for the September quarter (Q2FY22), air conditioners may show a growth of 20% as compared to a year ago. Washing machines and refrigerators should see an increase of 2-5% in sales volume. According to analysts at PhilipsCapital India Pvt Ltd, Voltas, the market leader in air conditioners, is expected to report an overall volume growth of 17%. Rivals like Blue Star and a few others are under pressure despite the pressure in the air conditioner market. Benefit of reduction in demand in FY21.

Voltas has expanded its product offerings and channels for its Beko range of products, a joint venture for white goods. Analysts expect Voltas revenue to register 11.5% year-on-year growth. There has also been some improvement in the Lloyd class air conditioners.

Havells offers a wide range of products in the electrical appliance or electrical consumer durables (ECD) space as well as lighting, switches and wire and cable (C&W). A report by Jefferies suggests that the demand for small appliances has seen a strong rebound mainly as consumers are shifting their homes to the phenomenon of work from home.

Besides, Consumer Electricals showed a strong recovery indicating a pick-up in construction activity. While business-to-consumer remains strong, business-to-business is also improving. It also bodes well for firms like Havells and Crompton Greaves Consumer Electricals Ltd., Bajaj Electricals Ltd. and Orient Electric Ltd.

While a pick-up in demand is helping firms, a rise in prices by manufacturers will boost realisations. Analysts expect a double digit growth in the price for Q2FY22. “YTD (year-to-date) price growth is 15-20% in durable goods/equipment and over 30% in cables and wires,” analysts at Jefferies India Pvt Ltd said in a note. “We expect consumer power companies to post 25% revenue growth YoY and 12% growth in our coverage versus Q2FY20,” wrote analysts at Emkay.

The cable and wire segment is expected to grow 34% over a year ago, while growing at 12% compound annual growth rate over two years. He said that the ECD segment should see a growth of 17 per cent.

A major downside for firms is the rising cost of raw materials. Analysts say the average copper prices during the first half of FY22 increased by 22% compared to the same period a year ago. It is true that firms have increased the prices of their products, but analysts believe that these are not enough to save margins. Also, discounts offered to lure buyers during festivals could impact margins. People at PhilipsCapital expect gross margins to see a decline of 100-150 basis points in the second quarter. One basis point is one hundredth of a percentage point. Shares of consumer durables firms have risen since August, mostly pricing in upbeat sentiment. Any bullish valuations could help further in the September quarter earnings.