Festive season lights up consumer durables sector
The festive season is likely to have brought cheer to the consumer durables industry, paving the way for a good December quarter.
“Festive demand is estimated to have grown in the range of 7-9% year-on-year,” noted Harshit Kapadia, an analyst at Elara Securities (India). This includes categories such as cables & wires, fans, switches, and lighting, he added. For televisions, the ICC Men’s Cricket World Cup provided a major boost.
The preference for premium products continued, with more demand for, say, double-door refrigerators than single-door ones. Washing machines, televisions and fans also saw higher demand at the top end. In the case of fans, companies such as Havells India stand to benefit as they cater to the premium segment, where customers are less price-sensitive. In general, the premiumisation trend augurs well for margins.
To be sure, there wasn’t much of an increase in demand for fans during the festive season, largely owing to seasonality. Air conditioners were another case in point. Even so, demand for air conditioners was steady in October thanks to high temperatures.
In a recent interaction with Dolat Capital Market, Orient Electric Ltd’s management said it expects its fans portfolio to be subdued in Q3 owing to a high base and the new BEE rules, and because demand for fans generally doesn’t spike during the festive season.
But Orient foresees increased momentum in Q4 with the summer offtake. The company also plans to hike prices by 2-5% in December-January to increase margins. Dull demand for fans and pressure on margins have pushed Orient’s shares down 17% so far this year.
Meanwhile, the cables & wires category is expected to outperform most others, mirroring the trend in Q1 and Q2. The outperformance is despite a sequential, albeit slight, fall in copper prices (about 3%) and comes on the back of strong demand in the business-to-business sector and solid infrastructure spending.
Companies that stand to gain from this include Polycab India Ltd and KEI Industries Ltd. Shares of both have more than doubled so far in 2023. Havells also stands to benefit, but to a lesser extent, as the cables & wires segment accounted for nearly 34% of its consolidated revenue in the first half of FY24. Shares of Havells are up 22% so far this year.
To be sure, companies haven’t announced any notable price hikes. In fact, offers and discounts prevail. “The festive season saw discounts across many categories. Most brands offered absolute discounts on the maximum retail price, credit card cashback offers, no-cost EMIs, vouchers and gift hampers,” analysts at Jefferies India wrote in a report on 4 December. Premium products were sold with EMI options from companies and stores, boosting affordability, they added. For companies to undertake significant price hikes, input costs must fall considerably.
Given this, revenue growth in Q3 should be led by volume. Take Crompton Greaves Consumer Electricals Ltd, for instance. Prabhudas Lilladher visited Lohar Chawl, a wholesale market for electronics and electrical goods in Mumbai and found that Crompton’s promotional offers drove better sales versus its competitors.
“As a result, Crompton’s electrical consumer durables segment is anticipated to outperform the sector in Q3 FY24, with expected year-on-year growth of around 12-13%, akin to Q2 FY24,” said Prabhudas Lilladher in a channel check update note. It goes without saying that it is crucial for demand to hold up after the festive season to aid volumes.
