As per CRISIL estimates, India's consumer durables sector is set to see robust revenue growth of nearly 20 percent this fiscal, after a flattish run last fiscal. A large part of this growth will be driven by electrical appliances makers (nearly 35% of sector revenues), which are expected to grow twice as fast as white goods makers (nearly 65% of sector revenues).
Triggers: #BOBCAPS
The growing upper-middle class will result in rising aspirational demand and improving access to the power supply. Additionally, PLI scheme will encourage higher value addition in India even as global majors are looking to shift sourcing away from China. Fifty-two companies including Daikin, Panasonic, Hitachi, Voltas, Bluestar, Havells, TVS-Lucas, Dixon and Syska have committed Rs 5,866 crore of investments under the PLI programme for white goods and LED lighting announced by the government of India. The scheme provides incremental 4-6 percent incentives.
As per World Economic Forum, India's upper mid- and high-income households to grow 2.8x over 2018-30E
| 2005 | 2018 | 2030E | |
| Low (<Rs 250k) | 151 | 127 | 57 |
| Lower Mid (Rs 250k-550k) | 51 | 97 | 132 |
| Upper Mid (Rs 550k-2.75mn) | 16 | 61 | 168 |
| High (>Rs 2.75mn) | 1 | 8 | 29 |
This substantially broadens the target market for durables as households can increasingly afford to look beyond basic needs.
Low ownership levels
Durables ownership per household
# Source: Longitudinal Ageing Study in India (LASI) 2020, International Institute for Population Sciences (IIPS), BOBCAPS Research
| RURAL | URBAN | TOTAL | |
| CAR | 3% | 17% | 8% |
| Computer | 3% | 21% | 8% |
| Water purifier | 4% | 26% | 11% |
| Washing machine | 6% | 36% | 15% |
Fifty million households do not even own a fan; 190 million a refrigerator and 230 million an AC
During the pandemic, durables demand has been more buoyant than other discretionary sectors such as automobiles, leisure and apparel
Resilient demand for consumer durables
Recovered faster compared to other consumer discretionary sectors such as apparel and jewellery retail
Other demand indicators such as housing, cement sales, and household savings are up while factors like household debt in India remain low compared to other countries
Source: Bloomberg, BOBCAPS Research
Market Outlook
Concerns: #BOBCAPS
Profitability at operating level will get impacted due to costs inflation despite price hikes.
BOBCAPS expects sector's margins to moderate by 100-150 basis points (bps) this fiscal despite higher revenues as clearly seen in Q2 earnings. The impact on profitability will vary due to lower price hikes. Consumer electrical makers have hiked prices by 8-10 percent this fiscal, much more than the average 3-4 percent by white goods makers. The operating profitability of white goods makers is seen moderating at 6-7 percent, marking an impact of up to 200 basis points (bps), compared with 10-11 percent for consumer electrical makers, which would be an impact of 50-100 bps.
Stock moves & valuations
| %YTD | PE FY23E | |
| Havells | 45% | 49x |
| Voltas | 47% | 38x |
| Polycab | 124% | 26x |
| Dixon | 91% | 47x |
| Crompton consumer | 18% | 33x |
| Whirlpool | -23% | 38x |
| Amber | 30% | 32x |
| V-Guard | 30% | 30x |
| Blue Star | 18% | 31x |
| Orient electric | 70% | 35x |
#BOBCAPS
Prefer CROMPTON, BLSTR, VGRD, WHIRL
HOLD ratings on Amber Enterprises (AMBER), Dixon Tech (DIXON), Voltas (VOLT), Havells (HAVL), Orient Electric (ORIENTEL) and Polycab India (POLYCAB) on stretched valuations and limited upsides
First Published: Dec 2, 2021 9:48 AM IST
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