Unseasonal rainfall impacts off-take of cooling appliances, says report
Companies plan inventory months in advance to prepare for a spike in sale of cooling appliances during summer. However, as weather patterns become more erratic, companies have been struggling with planning and manufacturing.
PremiumNew Delhi: Unseasonal rainfall in parts of in northern India during April has hurt sales of cooling appliances, analysts at ICICI Securities said in a report on Friday, adding that consumers have deferred purchases of such appliances which, in turn, has led more than usual schemes and offers.
“Post our interaction with companies and channel partners, we note that the revenue growth is still muted in April-May 2023. Unseasonal rains in North India in April 2023 has impacted off-take of summer products, the trade schemes as well as consumer offers are higher than earlier quarters, the ad-spend has also increased post decline during FY21-23. However, correction in input prices on year-on-year as well as quarter-on-quarter basis is likely to result in higher gross and EBITDA margins," analysts said in a report.
Companies plan inventory months in advance to prepare for a spike in sale of cooling appliances during summer. However, as weather patterns become more erratic, companies have been struggling with planning and manufacturing.
In an earlier interview with Mint, Anuj Poddar, managing director and chief executive of Bajaj Electricals Ltd., said unpredictable weather trends are making it hard for cooling appliance makers to plan their inventory. “For seasonal products, you do not want to be left with an inventory, especially at the end of the season, because it sits with you for a year. So, we plan for it, and then we see unseasonable rains in March. So, we slowed down our April production schedule, but then demand came back strongly in May; then suddenly, in May, we were out of stock," Poddar said.
Meanwhile, analysts at ICICI said that for makers of consumer durables, prices of major raw material are now easing. “The prices of aluminium, copper, steel and high density polyethylene (HDPE) have corrected 16%, 5%, 11% and 13%, respectively year-on-year," they said. Commodity prices are also declining quarter-on-quarter.
“Freight prices have also corrected with reduction in fuel prices. We believe there is a strong scope to see EBITDA margin expansion of 100-300 basis points year-on-year in Q1FY24," they added.
Additionally, companies are likely to pump in more money into advertising. “We model most white goods and durable companies to increase ad spend during Q1FY24. Most companies had cut ad spend during covid and we model ad spend as percentage of net sales to rise by 50-70bps in FY24," according to the report.
While the ad spend is likely to increase along with higher trade schemes, we believe the volume off-take is likely to be muted on a year-on-year basis, they said.
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