Consumer Durables share price target

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.

Our primary research (survey) indicates current EOSS (end of season sale) has kicked off two weeks early (likely) due to general business slowdown. We believe higher discounts are reflective of relative stress in underlying inventory, and hence, may be a leading indicator of business performance in near term.

We note most durable companies are introducing a new brand via acquisitions or new launch. We believe the strategy of sub-segmentation to be DCF accretive and note (1) new brand will allow to expand product portfolio in different segments such as kitchen.