Consumer Durables share price target

Woodpanel companies under our coverage reported a tepid Q1FY24 and we expect near-term headwinds to persist due to rising wood cost. We however remain optimistic about demand in the medium term due to continued uptick in the real estate sector and increased acceptance of readymade furniture.

Kajaria Ceramics (KJC) and Somany Ceramics (SOMC) have reported volume growth of 7.2% YoY and 8.1% YoY in Q1FY24 as tile revenues grew 5.4% and 5.8% YoY, respectively, due to modest demand. Consolidated EBITDA margin for KJC/SOMC was up 67bps/59bps YoY due to lower RM cost (including gas cost).

This is NOT a template-based results review report (of aggregate performance, charts et al). This is a portfolio manager summary of the under-appreciated, yet very important takeaways from the 1QFY24 results season on consumption (Staples, Retail, Paints, Jewellery, Building Materials, Durables, etc.). We decipher management comments and add the layer of our views.

Bajaj Consumer (BaCo), Emami and Jyothy Labs (JYL) – the trio – continue to trade at a considerable discount to Consumer Staples peers (all three companies (still) appear great value picks). These companies have gradually improved execution with: 1) focus toward distribution expansion, 2) improving performance in new-age channels, 3) diversifying their product portfolio (acquisitions, digital-first launches).

We note two divergent trends in white goods and durables sector as (1) B2C segment continues to report muted growth rates due to high inflation, regulatory changes and unseasonal weather conditions and (2) B2B segment is driving strong revenue growth led by revival in infrastructure, capital goods and real estate sectors.

Post interacting with companies and channel partners in the white goods space, we note: 1) revenue growth has recovered slightly in July’23-TD after remaining muted in Q1FY24, 2) trade schemes as well as consumer offers are at elevated levels owing to steep competitive pressures, 3) adspend too has increased post decline during FY21-FY23, and 4) B2B demand remains strong vs B2C demand.

In this report, we present a primary survey of 19 footwear brands – Puma, Campus, Metro, Mochi, Bata, Adidas, Nike, Reebok, Fila, Crocs, among others – covering 21,000 SKUs to assess the degree of discounting in the ongoing EOSS.

Both Titan and Kalyan reported strong demand prints in 1QFY24. Kalyan’s India jewellery revenue growth of ~34% YoY was higher compared to Titan’s jewellery (standalone) revenue growth of ~21% YoY.

Our interaction with channel partners and managements indicate likely volume growth in early teens in 1QFY24e. We believe delayed monsoon has allowed for higher paintable days vs base quarter. It has also likely resulted in higher revenues of exterior paints and waterproofing.