Consumer durable companies struggle with weak sentiment in quarter one of FY24
The first quarter of FY24 proved to be challenging for consumer durable companies, particularly in the cooling products segment. Weak consumer sentiment, unseasonal rains, competitive pricing, and a subdued demand environment affected the performance of room air conditioners. Despite some recovery in June, the overall volume growth remained flat. Looking ahead, the industry is expected to experience slower revenue growth, making it crucial to closely monitor demand trends, competitive dynamics, and volume growth. The festive season holds the potential to revive consumer sentiment and provide a much-needed boost to the consumer durable sector.
The consumer durable sector faced challenging conditions in the first quarter of FY24, as weak consumer sentiment impacted several product categories. Unseasonal rains, competitive pricing, and a subdued demand environment took a toll on the room air conditioner (RAC) segment of the cooling products market. Despite some signs of recovery in June, the overall volume growth remained flat.
Praveen Sahay, a Research Analyst at Prabhudas Lilladher, said that the first quarter was particularly challenging for products like fans and room air conditioners.
“Quarter one was very soft especially for the products like fan and RAC,” Praveen Sahay, Research Analyst, Prabhudas Lilladher said.
Factors such as unseasonal rains, intense competition, and weak demand adversely affected the RAC segment. Consequently, consumer durable companies witnessed modest volume growth during the period. Although June showed some improvement in demand, it fell short of making a significant impact.
Cooling product companies are expected to post single-digit revenue growth in quarter one. While Voltas is expected to experience slower revenue growth compared to Blue Star, both companies are anticipated to achieve growth in the single digits. On the margin front, RAC players are likely to witness an expansion of 50-60 basis points (bps), while Voltas is expected to achieve a margin expansion of 100 bps, primarily due to a lower base.
The non-rated fan inventory has largely been depleted, prompting companies to offer higher discounts and reduce prices to promote the sale of Bureau of Energy Efficiency (BEE) rated fans. Analyst Praveen Sahay expressed optimism about the fan segment's performance moving forward.
“I am quite hopeful for the fan segment to do well from here onwards,” Sahay said.
However, despite these efforts, the industry experienced stagnant volumes in the first quarter. Additionally, the absence of water heaters further weakened the quarter's performance.
The business-to-consumer (B2C) lighting market witnessed muted growth, while the business-to-business (B2B) and business-to-government (B2G) segments showed an uptick in orders during quarter one of FY24. Crompton faced challenges due to competitive pricing, leading to an anticipated 4 percent decline in revenue.
Similarly, Havells may also experience flat revenue growth due to soft summer sales. Operating de-leverage in fans and appliances is expected to impact margins for Crompton, with an estimated decline of 50-70 bps. Havells, on the other hand, may benefit from its cables, switchgears, and lighting segments, as well as a lower base.
The wires and cables segment continued to witness robust demand traction, with industry volumes projected to grow by 15 percent year-on-year. According to industry experts, more than 50 percent of players in this segment are expected to perform well in quarter one.
Despite the correction in copper and aluminum prices, the sector's strong volume growth is likely to result in mid to high single-digit revenue growth for the companies operating within this space.
Polycab is expected to be a key outperformer in the wires and cables segment, followed by KEI and Havells, in terms of both revenue growth and margins. Overall, the consumer durable space is expected to witness slower revenue growth.
Market observers will closely monitor commentary on the demand scenario, competition intensity, and volume growth. Additionally, all eyes will be on the upcoming festive season, as it is anticipated to drive a pickup in consumer demand.
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(Edited by : C H Unnikrishnan)
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