Summer is here and the Met Office has predicted extreme heat waves this season. While it is a difficult period for many states in India, it is a boon for summer stocks. The rise in temperatures throughout the country also leads to an increase in the demand for air conditioners, refrigerators, fans, etc., leading to a surge in their sales.
Just in April, most summer stocks have given positive returns. Blue Star has risen 7 percent, Supreme Industries has jumped 6.5 percent, Bajaj Electricals has advanced over 5 percent while Voltas has added over 4 percent in this period and Havells is up over 2.5 percent. Also, V-Guard Industries has added nearly 2 percent. However, Crompton Greaves has lost over 13 percent, Finolex Industries has shed 3.7 percent and Amber Enterprises is flat but in the red.
Let's take a look at which summer stocks different analysts suggest buying this season:
Avinash Pathak, Research Analyst at LKP Securities, believes that the long-term demand and consumption will stay steady because of the structural demand drivers like increasing power availability, improving construction activity, increase in the housing sector which he expects to continue. The sector also acts as a stimulus for the consumer durable industry, so companies, in this industry with an excellent cash conversion cycle, balance sheets with a strong brand recall and expanding product basket will perform well in the consumer durables industry, he added.
Under LKP's coverage, he likes Crompton in the consumer durable space given its comfortable valuations and remains positive on the ongoing summer season. Further, the acquisition of Butterfly Gandhimathi is expected to increase synergies and enhance growth opportunities in the Kitchen appliances space, he said.
Praveen Sahay, Research Analyst, Prabhudas Lilladher, noted that under the seasonal product category, the Room Air Conditioner (RAC) market is expected to benefit most with harsh summer due to low penetration level, and under his coverage universe, Voltas is RAC play, however, high competitive intensity in the sector with the start of manufacturing facilities by brands like LG, Blue Star, etc. is a risk to its market share in coming months.
Major fan players as well are beneficiaries from the summer season - Havells, Crompton, and Bajaj Electricals are expected to benefit from it, he further predicted.
Vinit Bolinjkar- Head of Research - Ventura Securities, likes Blue Star this summer.
"Blue Star commissioned a new plant at Sri City. The timely start of operations at this plant was crucial for Blue Star, as it prevented the company from facing production constraints at its Himachal factory. The Sri City plant's strategic location near ports could also provide cost savings for Blue Star by reducing its working capital requirements. With the new plant in place, Blue Star is now well-positioned to serve its customers and meet their increasing demand. Management has targets to reach 15 percent market share by FY25 from the current 13.5 percent," he said.
He also pointed out that Blue Star’s MD Thiagarajan has stated that Blue Star will look at investing in a compressor plant when it crosses 1.5 million unit sales.
Suman Bannerjee, CIO, Hedonova, expects midcap companies engaged in manufacturing fans, ACs, refrigerators, agri pipes, air coolers and pumps may benefit from a strong summer forecasted by the India Meteorological Department. These companies include Crompton Greaves Consumer Electricals, Havells India, V-Guard Industries, Amber Enterprises, Finolex Industries and Supreme Industries, he said.
Nirav Karkera, Head of Research at Fisdom, has picked Blue Star and Amber Enterprises as its top summer picks.
According to Karkera, Blue Star, a leading air conditioning and commercial refrigeration company in India, has managed to maintain its growth momentum for the fifth consecutive quarter despite the challenging economic environment. Its focus on revamping its product portfolio, introducing new product categories, and expanding its domestic and international markets has helped the company stay ahead of the competition, he noted. Moreover, Blue Star's investments in research and development capabilities and initiatives to mitigate supply chain risks and improve profitability highlight its commitment to innovation and operational excellence, stated Karkera. The company's unique positioning in the industry, coupled with its forward-thinking approach, sets it apart from its peers and makes it well-positioned to succeed in the dynamic market landscape, he added.
For Amber Enterprises, Karkera said that it is a well-established player in the Indian air conditioner OEM and ODM industry, offering diverse solutions. Its product range includes complete unit solutions for Room Air Conditioners (RACs) and components for major RACs. With expertise in heat exchangers, sheet metal components, injection molding components, system tubing, and motors, Amber has strong backward integration capabilities, providing quality, cost-effective, and timely solutions. This makes it a preferred partner for leading air conditioner manufacturers in India, including LG, Panasonic, Voltas, and others, believes the expert. With its dominant market share of around 23-25 percent in the Indian RAC market, Amber is well-positioned to leverage the benefits of the PLI scheme, he explained.
Meanwhile, brokerage house Jefferies sees a 14 percent sales growth and 110 bps QoQ rise in operating profit margin for six summer companies namely Crompton Greaves Consumer Electricals, Havells India, V-Guard Industries, Amber Enterprises, Finolex Industries and Supreme Industries in the March quarter.
"We foresee Crompton Consumer, Havells India, V-Guard, Amber, Finolex Industries, and Supreme Industries as key beneficiaries of a good summer. Supreme Industries is among our top picks. But, in view of stretched valuations and continued margin weakness, we retain ‘Hold’ on Havells and Whirlpool of India. Astral's (Hold) 9MFY23 volume growth at 20 percent lags that of Supreme Industries at 35 percent," it said.
It noted that Crompton Greaves Consumer is the market leader in fans with a 28 percent share and residential pumps with a 25 percent-plus share and further added that Havells India has been posting good sales in Lloyd, with nearly 18 percent of its mix over the last 4-5 quarters, alluding to volume market share gains.
For V-Guard, it noted that the company's stabilisers (20 percent of sales), fans and pumps could benefit from a hotter summer, it said. Whirlpool of India also has a stronger franchise in refrigerators and washing machines (60-65 percent of its mix) than in ACs, it added.
Meanwhile, for Amber, Jefferies noted that the firm has a 70 percent market share in contract manufacturing of ACs in India, and can be viewed as a demand aggregator for the under-penetrated AC industry in India. It sees 15 percent YoY Q4 sales growth for the stock, with 70 bps QoQ Ebitda margin expansion.