Consumer Durables share price target

Air cooler is a high-growth category largely dominated by the unorganised sector (75% market share as of FY21). Covid, GST implementation and increased consumer preference for branded products has pushed the share of organised sector up from 10% in FY11 to 25% in FY21. We believe organised players such as Bajaj Electricals, Havells India, and Crompton Greaves will likely be net beneficiaries of further shift caused by high inflation in commodity costs and supply chain disruptions.

We believe two divergent strategic approaches are at play in paints industry (prior to Grasim's entry in CY22) - (1) market leader Asian Paints is endeavoring to accelerate industry formalisation by dropping profit pool (so that Grasim can't reach the "easy 5% share" by gaining from informal players), (2) Indigo, Akzo etc. is likely (somewhat) protecting their profitability to have adequate ammunition for the inevitable heightened competition in CY22 and beyond.

We initiate coverage on Orient Electric with a BUY rating and maintain our BUY rating on Crompton Consumer and ADD ratings on Havells, Voltas, TTK Prestige, V-Guard and Symphony. We roll forward the target price for our coverage universe to FY24. The consumer durable industry, including fans, has seen numerous trends over the past decade. However, fan continues to remain an underrated category. The industry (>INR 90bn) has seen a shift across product evolution, customer preferences, and distribution. With the best RoCE amongst durables, fans have helped companies reinvest and diversify into other appliances. We see further transformation in the fan industry with the implementation of energy efficiency norms, which would consolidate the industry further. We believe top brands including Crompton Consumer, Havells and Orient Electric stand to benefit the most from the industry transformation

Our coverage universe is likely to witness a 15 bps contraction in operating margins but ex-ITC it is likely to contract by 80 bps. Most commodities have remained elevated in the last three months pressurising FMCG companies to take prices hike & reduce advertisement spends. Average palm oil prices are up 60% YoY and 6% QoQ. Similarly, average crude prices have increased by 68% YoY and 6% QoQ. Copra prices have been flat YoY but cooled off by 22% from the peak in March 2021. Tea prices have also declined ~30% in last two months. Despite price hikes, we believe operating margins of HUL,...

categories, pushback on demand from further price hikes can't be ruled out. Acc=Accumulate/ UR=Under Review We maintain our positive stance on Consumer Durables given low penetration and market consolidation. However, with sharp run up in stock prices, we place ratings/ targets under review for KEI and Voltas. We shall...

CD companies are likely to report a normalised EBITDA margin of ~17% in Q1FY22 against significantly lower margin of 10.5% in Q1FY21. Prices of key raw materials such as TiO2, copper, PVC are up 22%, ~76%, 100% YoY, respectively. However, companies have passed on the higher raw material prices by taking price hikes, which should support EBITDA margins. We believe the EBITDA margin will peak out during the year...

High commodity prices; limited scope to curb margin fall Operating margins FMCG Coverage (%) Our coverage universe is likely to witness 40 bps operating margins contraction but ex-ITC, margins are likely to fall 240 bps. The quarter has seen a steep increase in commodities costs with Palm Oil, Copra & crude prices risen sharply. On a YoY basis, average palm oil & crude prices were 2x & copra prices were up 20%. Though palm oil & copra prices started cooling off in May-2021, the impact of the decline would not bring immediate...

OUR TOP PLAYS Positive: Polycab India, Dixon Technologies Negative: Symphony Ltd

1Q started on an optimistic note with demand momentum sustaining until mid-April, despite a strong close to March, post which the sentiment was disrupted until May due to 2nd Covid wave. However, June saw some pent-up demand, as markets opened up. We expect our consumer durables universe to register high growth rates given 1) favorable base due to complete lockdown impact 2) delayed monsoon onset to extend seasonal product sales window and 3) retention of FY21 market share/ shelf space gains. However, we expect it to be 75%-80% of 1QFY20 levels. We expect Sales/EBITDA/PAT...

1Q started on an optimistic note with demand momentum sustaining until mid-April, despite a strong close to March, post which the sentiment was disrupted until May due to 2nd Covid wave. However, June saw some pent-up demand, as markets opened up. We expect our consumer durables universe to register high growth rates given 1) favorable base due to complete lockdown impact 2) delayed monsoon onset to extend seasonal product sales window and 3) retention of FY21 market share/ shelf space gains. However, we expect it to be 75%-80% of 1QFY20 levels. We expect Sales/EBITDA/PAT...