Consumer Durables: Realization Drives Revenues Growth, Says Emkay Global

After getting hit in Q1FY22, the consumer durables and electrical industry saw demand recovery in Q2, Emkay Global has said in a report.

“However, in our view, the high base from last year should restrict volume growth on a yoy basis. The companies should witness double-digit value growth, backed by price hikes initiated in the last three quarters to offset commodity inflation. C&W segment will be an outlier, with strong growth led by ~35% price increase,” the brokerage has said.

According to Emkay Global following are the Channel feedback indications:
1) a moderation in demand recovery in Aug and Sept after seeing strong comeback in July; 2) Channel inventory across the product categories is at normalized levels, 3) relatively better performance of Electricals compared with white goods; 4) a rebound in private capex/small-ticket projects but only gradual pick-up in large government orders benefitting C&W; 5) use of alternative materials, price hikes and product mix change (in a few companies), which should support stability/improvement in GM qoq; and 6) competitive intensity remains high durables along with premiumization story.
“The prices of some constituents in the commodity basket have cooled off (except for aluminum) vs. Q1, along with a stable USD/INR. Within our coverage universe, Havells and Whirlpool should see a healthy improvement in GM sequentially, while others should post stable numbers. Contract manufacturers and C&W companies should see a sharp contraction in GM yoy, while the trend should be stable to better qoq. Despite elevated revenue growth, high margin base in Q2FY21 shall restrict EBITDA growth for few companies, with costs expected to normalize. Our coverage universe should see a 246bps qoq EBITDA margin expansion,” the brokerage has noted.