In 1QFY24, the revenue of Electrical Consumer Durable (ECD) companies witnessed a healthy growth of 16% YoY to ₹179.2 billion. The profit after tax of ECD companies improved by 25% YoY to ₹12.8 billion. This was largely on the back of healthy growth in the B2B segment, particularly cables, said global brokerage firm JM Financial.
However, the demand environment in the Business-to-Consumer (B2C) segment remained subdued due to factors such as a general consumption slowdown and relatively weak summer conditions.
The brokerage said the gross margin improved on the back of a benign RM environment, however, it said this improvement was not reflected in the operating margin due to high competitive intensity and sustained spending on long-term strategic initiatives.
Despite short-term challenges, the industry remains optimistic about demand recovery, anticipating a strong H2 recovery in rural markets and stability in the input cost environment.
The brokerage remains positive from the medium- to long-term perspective, given macro tailwinds, low penetration for some of the categories, and category expansion opportunities for companies. It maintains a 'buy' rating on Bajaj Electricals, V-Guard Industries, Havells India, and Stove Kraft.
For Havells India, JM Financial has a target price of ₹1,500 apiece, indicating an upside potential of 12%. Havells' 1QFY24 revenue surged 14% YoY, led by strong growth in Lloyd and cables and wires.
ECD growth was modest due to unseasonal rains. EBITDA and adjusted PAT rose by 11% and 12% YoY, respectively. Industrial and infrastructure segments boosted demand, consumer categories are recovering, and margins are expected to improve from 2HFY24, said the brokerage.
Bajaj Electricals, on the other hand, reported a 1% YoY decline in standalone revenue in Q1FY24 due to weak demand and several macro challenges. While optically it appears to be a weak performance, JM Financial believes that Bajaj Electricals growth and margin performance were satisfactory considering factors like consumption weakness, BEE transition, unseasonal rains, and intense competition.
Notwithstanding near-term demand weakness, the company aims for margin expansion through portfolio premiumization, operating leverage, improved lighting segment mix, and logistics optimization.
The company classified its EPC segment as 'Discontinued Operations,' with a demerger process expected by December 2023. JM Financial maintains a buy rating with a price target of ₹1,470, and the stock remains their top pick in ECD coverage. This target price indicates signals an upside potential of 29.5% for stock from its latest closing price.
V-Guard Industries (V-Guard) posted a robust 1QFY24, surpassing JM Financial estimates on all counts. It reported a 19% YoY revenue growth to ₹12.1 billion, led by robust performance in the Electronics, Electricals, and Consumer Durable segments.
Gross margin expanded by 250 basis points YoY due to softer commodity prices and a favorable product mix. EBITDA grew 28% YoY, and PAT increased by 20% YoY. JM Financial has lifted its target price for V-Guard to ₹350 from ₹320 apiece, maintaining a ‘buy’ with an upside potential of 12.55%
Stove Kraft reported 1QFY24 revenue growth of 8% YoY, while gross margin expanded to 36.9% due to softer raw material costs, in-house manufacturing advantages, and a seasonal inventory increase.
However, the EBITDA margin expanded by a mere 20 basis points YoY to 8.1% on account of higher other expenses and employee costs as the company continues to invest in backward integration. The brokerage continued with its 'buy' rating on the stock with a target price of ₹600 apiece, which indicates an upside rally of nearly 14%. It expects the demand to improve with the onset of the festive season.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.