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Companies in the electrical consumer durables sector are witnessing greater interest from the Street with the onset of summer. The stocks of Voltas Ltd, Blue Star Ltd and Havells India Ltd have risen 16-28% so far this year.

Summer season sales remain crucial for cooling products manufactured by them. Note that in 2020, lockdowns had impacted sales in the peak season. However, the recovery thereafter in FY21 was strong, led by rising home demand, market share gains by the organized sector, and the ban on components and units from China. With the onset of the summer season, the Street is expecting further gains for the listed companies in this space.

Strong rebound
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Strong rebound

“Our channel check suggests that demand for air conditioners and other white goods appliances (refrigerators, washing machines, LED panels) continues to remain strong and expectation is to have 15-20% industry growth in CY21," said analysts of Antique Stock Broking Ltd.

Strong growth is expected to be driven partly by pent-up demand of the previous year.

The pick-up in real estate sales bodes well, as does the continuation in the work-from-home trend. The under-penetrated AC market remains a key growth driver, while industrial demand recovery is likely to drive sales growth. Meanwhile, what’s boosting optimism is weather forecast of higher-than-normal maximum temperatures across north, northwest and northeast India, and some other parts of the country.

Strong demand also bodes well for price hikes, keeping in mind rising input costs for manufacturers. With demand recovery and channel stocking restarting in Q3, prices in February had risen by 5-6% since January 2021, said Jefferies India Ltd analysts. The broker’s dealer checks suggest a healthy demand for consumer durables, with optimism that air-conditioner sales will pick up with the onset of summer.

Jefferies estimates 20% and 35% year-on-year rise in Q4 cooling segment revenue for Voltas and Blue Star, respectively. Overall, as optimism remains strong, the margins will be a key monitorable, given the input cost pressure. Besides, some stocks are trading at premium valuations, which means high growth rates and earnings upgrades are needed to sustain valuations. Voltas, Havells and Blue Star are all trading at over 50x FY22 earnings estimates.

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