Consumer Durables share price target

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...

In this report we have attempted to analyze; raw material cost trend, price hikes, and impact of COVID uncertainty on Indian FMCG companies. Our primary observations and conclusions are as follows; (i) raw material cost for edible oil, packaging material and paint-related-products (TIO2, VAM etc) rose significantly during 1QFY22; category leaders (MRCO in Edible Oil, HUL in soaps) have taken larger price hikes compared to 2nd/3rd brand to protect margins (ii) in international market; 88% of the regions, where Indian FMCG company has significant business presence, have already witnessed 3rd/4rth wave and is now more stable; we...

onshore manufacturing of critical components like Compressors, Motors, PCBs, LED chips amongst others. We remain unsure on the participation of shrink lead times thereby reducing working capital requirements. We continue to maintain our positive stance on consumer durables space given huge penetration scope and market consolidation. Amongst our coverage universe, Voltas/ Lloyd (Havells) stand to benefit from AC PLI while...