Consumer Durables share price target

We differ from consensus that ongoing heat wave is likely to result in strong valuation upgrade for fan, cooler or air conditioner companies. Chief reasons: (1) Fan companies had sold inventory of non-star rated fans in Q3FY23 and there is ~3 weeks extra inventory in trade which will get liquidated in Q4FY23. It is likely to result in lower primary sales for fan companies in Q4FY23.

Copper, a major raw material (>35% of RM cost) is back in inflation zone. However, other raw materials such as aluminium, steel and HDPE are still in deflation. We model white goods and durable companies to report 100-300bps YoY EBITDA margin expansion in Q4FY23.

A sense of inertia engulfed the Indian markets in the past month. The Nifty 50 index traded flat as a surprise rise in inflation, muted industrial output and crisis in Adani group stocks took away the sheen of a favorable budget. One sector that stood out in this inconclusive month was Consumer Durables. It was among the top five best performing sectors.

Post speaking with white goods and durable companies, we note the key budget expectations are: (1) increase in customs duty to likely to benefit EMS companies such as Amber, Dixon and Syrma, (2) Reduction in customs duty for key components under the IGCR route for motor and compressors will likely result in higher domestic manufacturing, (3) The prices of white goods & durables are up 20-22% over past two years led by high inflation and costs to comply with BEE norms.

Regional players’ brand promotion with higher discount on wastage and making charges to create pressure on organised players (Tanishq, Kalyan). The beauty of Indian consumer is that their mind is curious and observing. Purchase for any occasion translates into a quest for better customer experience, be it on identifying the pricing aspects, design range or the customer service.

We visited Chennai and interacted with several regional sales managers and area managers of retail/QSR companies to gain first-hand insight on the business (at store level) and evolving competitive landscape.

Strong base (due to channel up-stocking prior to ~20% price hike in Nov- Dec’21) and steep inflation have impacted volume growth in Q3FY23. Mismatch of Diwali on YoY basis and prolonged monsoon also impacted volumes.

Both Titan and Kalyan reported decent demand prints in 3QFY23 update. Titan’s jewellery performance of ~11% YoY growth in revenues was similar to Kalyan’s (standalone) revenue growth of ~12% YoY.

Consumer Durables - Q3FY23 - Earnings Preview