scorecardresearchVolume growth will boost consumer durable sector revenue to 15-18% in FY

Volume growth will boost consumer durable sector revenue to 15-18% in FY 2022-23: Report

Updated: 08 Sep 2022, 01:24 PM IST
TL;DR.

According to CRISIL, the industry crossed the pre-pandemic mark in value terms last fiscal year, and it is expected to scale past the pre-pandemic mark by 3% this fiscal year.

Despite the rise in volumes, the rating agency expects margins will decline marginally due to higher raw material prices and adverse foreign exchange movements.

Despite the rise in volumes, the rating agency expects margins will decline marginally due to higher raw material prices and adverse foreign exchange movements.

Since the start of 2022, consumer durable firms have faced several challenges, starting from the Russian-Ukraine war to high commodity prices and a depreciating rupee. On top of that, companies also faced supply disruptions as components struck at the Shanghai port due to China's no-Covid policy.

Due to high raw material (RM) cost pressure, companies have taken multiple price hikes. However, with the recent price correction in industrial metals (copper, aluminum, steel) will provide some margin relief for consumer durable firms going forward. Along with that, crude oil prices, the key raw material, fell sharply from record highs, and now trading near an 8-month low.

Despite price hikes, sales of electronic items have picked up since the start of April. The unprecedented heat wave in India in the month of March and April of 2022 has also boosted sales of electronic items, especially room air conditioners. This summer, sales have picked up following two summers that were nearly washed out due to COVID-related restrictions in 2020 and 2021.

Ahead of the festive season, industry experts believe that volumes will pick up more and are expecting bumper festive sales. The festival season is critical for automobile and consumer electronics companies, as this period accounts for the majority of sales.

Rating agency CRISIL expects the revenues for the consumer durable firms to grow by 15-18 percent to 1 lakh crore this fiscal, owing to an increase in volume. It anticipates a 10-13 percent increase in volume in 2022-23.

"Demand will be driven by both urban and rural segments, though rural demand will come into play in the second half of the fiscal," it said.

According to CRISIL, the industry crossed the pre-pandemic mark in value terms last fiscal year, and it is expected to scale past the pre-pandemic mark by 3% this fiscal year.

Despite the rise in volumes, the rating agency expects margins will decline marginally due to higher raw material prices and adverse foreign exchange movements, but the credit risk profiles of the sector will remain comfortable due to their strong balance sheets, it said.

"In the last two fiscals, pandemic-led disruptions have impacted consumer sentiment and peak season demand. This fiscal, "healthy growth in urban income and higher crop prices, which are expected to sustain farmer incomes, will drive demand for consumer durables," said Pushan Sharma, Director at CRISIL Research.

The drought situation in eastern India and monsoon progress remain key aspects to monitor, Sharma added.

Import content for ACs is currently at 70-75% of the total raw material cost. The government’s production-linked incentive (PLI) scheme is expected to bring down import dependency to 20-25% in five years. Notably, 80% of compressors are likely to be manufactured locally by 2026, said CRISIL.

The stocks in the sector have progressed well in the last three months. For instance, shares of Havell's has risen nearly 21 percent in the last three months. Similarly, in the same period, Bajaj Electricals has shot up 26.17%, Whirlpool (up 14.28%), Crompton Greaves (up 15.44%), Vaibhav Global (up 18.62%), TTK Prestige (up 21.97%), and Dixon Technologies (up 21.68%).

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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Commodity prices and stock market
First Published: 08 Sep 2022, 01:24 PM IST