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Tailwind ahead for consumer durables sector during festival season

By Devangshu Datta
October 16, 2023 11:48 IST
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It’s all eyes on the consumer durables sector during the festival season after a weak Q1FY24 and Q2FY24 was impacted by an erratic monsoon.

Consumer durables

Photograph: PTI Photo from the Rediff Archives

Traditionally, this period sees the highest number of purchases.

Dealers and manufacturers are complaining about low business-to-consumer (B2C) off-take during the first half.

A pickup in consumption demand would be welcome.


However, business-to-business (B2B) off-take has been reasonable.

Companies like Havells, Blue Star, Voltas and Polycab have seen strong B2B volumes.

Some optimism is visible at the dealer level after a reasonably strong pick up of B2C in August.

Inventories of items like non-rated fans have been liquidated.

Air-conditioner (AC) volumes have been reasonable but not very strong.

The industry will be looking at off-take of the newly-mandated energy rated fans for the calendar year 2024 but sales are only anticipated in Q4 of FY24, given the seasonal factor.

There may be export opportunities for fans, given the global warming and this could be a new revenue stream.

There’s also hope of some margin expansion as raw material costs may ease with inflation levelling off.

While B2B has benefited from real estate demand, there’s high competitive intensity and price erosion in areas like lighting solutions.

Lighting volume remains strong, but prices have dropped 20 per cent or more due to changes in technology.

Again, due to the real estate activity and return-to-office norms after Covid, segments like cabling, wiring, switch gear and commercial refrigeration, among others, have been driven by B2B demand.

Dealers also said that trends around Independence Day sales indicate revival of consumer demand to some extent in Tier-3 towns and rural areas.

Independence Day sales were up 25 per cent year-on-year (Y-o-Y).

And, dealers have managed to liquidate excess inventory despite average selling price being over 6 per cent in many categories.

Lower raw material costs may create headroom for discounts in the festival season.

A rural pick-up in demand usually translates into more volumes for entry level / mid-level products rather than premium items.

Despite these encouraging signs, the electrical segments with their B2B focus could remain a safer bet than the appliance / white goods segment.

The B2B demand is more strongly linked to government spending.

Consumption demand, especially at the rural / semi urban level is likely to be patchy, due to divergent monsoon trends.

However, election-related spending is likely to put money in pockets, due to assembly elections across many states as well as the general elections in April – May 2024.

So, that could be a reason to bet on a big rebound in B2C demand in H2FY24.

From a valuation perspective, the weak first half means a significant pullback in valuations across the consumer durables space.

The long-term trends in both B2B and B2C will correlate to GDP growth acceleration, which is on the cards.

There’s a case for saying the worst is over in terms of demand weakness and margin pressures.

Analysts in this space have positive views on Havells, Crompton Greaves Consumer and Polycab.

The beaten-down valuations could also attract interest from value investors if there’s a pick up in earnings before interest, taxes, depreciation, and amortisation (Ebitda) margins and volumes.

Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.

Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.

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Devangshu Datta
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