The Ministry of Finance on November 19 rolled back the export duty imposed on steel in May this year. This may result in more export opportunities for domestic steel players, which may lead to higher demand for steel, pulling domestic steel prices upwards.
However, higher steel prices are likely to have a limited impact on the durable players, as historical raw material cost analysis of durable players suggests a very low exposure to steel, which constitutes only 2–4 percent of their net sales, ICICI Securities said in its equity research report.
The brokerage noted that steel constituted only 1.6 percent and 2.3 percent of total sales and total raw material costs in FY22 for Havells, respectively. Other durable goods companies also have steel exposure of less than 5 percent of net sales.
The key raw materials for white goods and durable companies are copper, aluminium, and crude oil derivatives; thus, the brokerage believes there will be a negligible impact on the profitability of durable companies going forward.
The brokerage pointed out that TTK Prestige will likely get impacted on the profitability front in the near term as steel cookers comprise 30 percent of the total cooker portfolio for the company.
ICICI Securities remains positive on the white goods and durables sector on the back of strong return ratios, healthy growth potential, and low penetration levels. It also expects that the migration from the unorganised to the organised sector will steadily generate value for the companies.
In addition to that, the brokerage mentioned some of the key risks for the sector including a rise in crude oil prices, delay in price hikes to protect margins, and irrational competition.
Major consumer durable companies reported weak numbers for the September quarter as higher input costs and inventories pushed up the overall operating costs.
Havells India reported a 38.15 percent decline in its consolidated net profit to ₹187.01 crore for Q2 FY23 compared to a consolidated net profit of ₹302.39 crore in the July-September quarter a year ago.
Revenue from operations rose by 13.63 percent to ₹3,679.49 crore during the quarter as against ₹3,238.04 crore in a similar quarter of last fiscal. The total expenses for the company jumped 21.10 percent to ₹3,471.57 crore in Q2 FY23 from ₹2,866.54 crore.
Similarly, V-Guard Industries' consolidated net profit fell 26.5 percent to ₹43.66 crore in the second quarter. The company had posted a consolidated net profit of ₹59.40 crore in Q2 FY22. The company's total expenses rose 12.51 percent to ₹93,026 crore in the second quarter of FY23.
Likewise, other companies, including Crompton Greaves, Whirlpool of India, and Bajaj Electricals, have seen a drop in consolidated net profit between 10 and 88 percent in the September quarter.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
