Summer demand: advantage market leaders in consumer electrical products
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The onset of the summer season and rising temperatures have brought shares of consumer electrical product companies back in focus. Shares of Symphony Ltd, Havells India Ltd and Bajaj Electricals Ltd have gained 29-60% so far this calendar year. In the year-ago period, they were up 3-11%. Voltas Ltd, which derives a sizeable part of its revenue from air conditioners, has gained 23%, compared to a 12% loss in the year-ago period.
The gains reflect the business recovery. Channel checks by IIFL Institutional Equities show a rise in demand for fans and air coolers. The business environment is back to pre-demonetisation levels and dealers are said to have begun restocking.
According to Himanshu Shah, director (sales and marketing) at Symphony, consumer buying started in February while demand recovery is more gradual in the north and the eastern parts of the country. The January-March quarter results will reflect some benefits of the demand recovery, though the full impact can be gauged only after the current quarter. Nirmal Bang Institutional Equities expects revenues of Whirlpool of India Ltd, Havells and V-Guard Industries Ltd to have grown in double-digits in the quarter gone by.
The air cooler industry is seeing increased competition with the entry of new companies. But according to IIFL, the new entrants will help expand the organized market. Symphony, which has the widest range of coolers and good brand recall, is said to be better placed to benefit from summer demand. In fans, new product launches are expected to aid large companies’ market shares. “The fans and coolers segment is expected to grow by 8/15% respectively, wherein the leading brands in each category (Crompton and Symphony) are expected to grow by at least 4-5% percentage points ahead of the market,” adds IIFL.
The story is slightly different in air conditioners where after-sales service and dealer margins will have a determining role on sales growth. Even then, thanks to rising mercury levels, air-conditioner sales have picked up.
Voltas, with a large market share and wide reach, is expected to benefit from higher demand. But the challenge lies in profitability. There are fears that high competition (both from new products and new entrants) may weigh on Voltas’s margins. “Competition has increased with players such as Daikin, LG, Panasonic, Lloyd Electric and Blue Star eyeing a larger market share,” Motilal Oswal Securities Ltd wrote in a note.
Dealer checks by Jefferies India Pvt. Ltd show stable pricing with limited discounts.
But as they say one swallow does not a summer make. A clear picture will emerge only towards the end of the season. In the meantime, all hopes are now pinned on a good summer season. A good season, according to Symphony’s Shah, will extend the sales period to July.