Consumer  durable  cos  had  a  strong  Q4,  but covid  may  hit outlook

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 2 min read . Updated: 18 Apr 2021, 08:36 PM IST Ujjval Jauhari

Demand for electrical appliances has continued to remain buoyant, with market share gains from unorganized firms helping sales, said analysts

Consumer durable manufacturers are expected to report a decent performance for the March quarter, led by strong demand. Demand for electrical appliances has continued to remain buoyant, with market share gains from unorganized firms helping sales, said analysts. This, coupled with some price hikes taken by manufacturers, is set to help drive revenue growth for the companies.

For cooling product manufacturers, too, inventory stocking ahead of peak summer is expected to drive performance.

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“Our industry survey suggests that strong primary sales momentum in Q3FY21 has sustained in Q4 as well. Improving housing sales, early onset of the summer season and pent-up demand continue to drive strong retail demand for electrical goods and air-conditioners in Q4," said analysts at Nomura Global Markets Research.

While the growth witnessed in Q4 may keep investor sentiment upbeat, there are areas of concerns, too. Rising commodity costs, for one, may have a bearing on profitability of manufacturers and need to be watched. Prices of key raw materials such as steel, aluminium and copper have seen a sharp rise recently.

Analysts said it remains to be seen if the 5% increase in January prices will be sufficient to mitigate the cost pressures.

Analysts at JM Financial Research said rising commodity prices and normalization of most expenses are likely to lead to lower margins (especially compared to Q3/9MFY21). This is despite the estimate that companies in their coverage will report 6-14% sales CAGR over Q4FY19-Q4FY21 in the consumer appliances/electricals segment. This excludes engineering, procurement and construction (EPC) business of Bajaj Electricals Ltd.

While demand remained strong, sales in the B2B or institutional segment has been soft. This is likely to lead to slower-than-expected sales for some companies that are more dependent on the B2B segment. B2B sales are still lower than pre-covid levels, said analysts.

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Meanwhile, domestic wires demand growth has been strong and in double digits. Rising aluminium prices prompted companies to raise wire and cable prices by nearly 15% in Q4, which is over and above 10-15% hikes in Q3FY21, suggest reports. Thus, while revenues will be up sharply year-on-year (due to low base), they are still largely flat compared to Q4FY19 levels, said analysts at Nomura.

Meanwhile, rising covid-19 cases is impacting sales, especially in the cooling products segment. This is a repeat of the trend seen a year ago.

Analysts at JM Financial said: “Intermittent lockdown could pose short-term challenges in recovery momentum." Not surprisingly, stocks of Voltas Ltd, Blue Star Ltd and Havells Ltd corrected a bit lately. Meanwhile, the stocks are trading at premium valuations and continued growth momentum is necessary for sustaining the same. Havells and Voltas are trading at over 40 times FY22 estimates.

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