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In summer heat, which consumer durables stocks are attractive? Find out here

BNP's channel checks suggest that consumer durables retailers saw fewer footfalls post the Holi festival, as many regions had unseasonal rains. It pointed out that February had started on a strong footing with dealers starting to build Air Conditioner (AC) inventory levels. Channel partners are optimistic of a demand revival for seasonal products like ACs and Refrigerators.

BNP Paribas has picked a host of summer stocks that look attractive.Premium
BNP Paribas has picked a host of summer stocks that look attractive.

The summer season has kicked started to melt us with its warm characteristics. During this seasonal weather, stock markets can also be a hot station for parking your hard-earned money for wealth creation. If summer and equities are in the same investment thought, then one specific sector will definitely cross your mind. And that would be none other than consumer durables! This summer, consumer durables demands are yet to be played out but dealers are optimistic. BNP Paribas has picked a host of summer stocks that look attractive.

Electrical consumer durables:

In electrical consumer durables, Nilesh Bhaiya, Analyst - Consumer Durables and Capital Goods at BNP Paribas said, as per dealers, Orient and Havells have already developed a good brand recall in premium categories and decorative fans. He added, "we think this should help them create a strong market share in the premium segment."

BNP analyst expects competitive intensity to aggravate, especially on the low end (one-star rated fans) as it is the core of the market, with many players like Usha, Bajaj, and the new entrants (Kent) eyeing volume market share gains. However, this is expected to pose a threat to Crompton, the market leader in fans by volume.

Overall, in electrical consumer durables, Nilesh said, "the true test of demand for fans should begin from April 2023. Given the El Nino effect, most dealers are confident of demand picking up."


Going ahead, in the case of lighting, Nilesh revealed that in 3QFY23, as many dealers used up a significant portion of their working capital to stock non-rated fans, primary sales of other equipment, including lighting and switches fell. However, dealers said that channel inventory levels are normal for lighting and switches currently.

He added, "new entrants, including Indiabulls and BPL (a brand owned by Reliance Retail), are cluttering the B2C lighting market aggressively. Dealers expect the entry of new players with a strong parentage to aggravate the competitive intensity, likely leading to price wars, posing a risk to the margin profiles of incumbents such as Crompton, Syska, Bajaj, Polycab, etc."

Nilesh sees stable trend in pricing in the lighting space. However, dealers expect rising competitive intensity to pose a risk to prices in the next few quarters.


Further, on pumps, Nilesh said, competition has increased, as companies that traditionally sold agricultural pumps have forayed into the residential-pump market. Crompton is watchful of the competition and has taken some pricing actions to compete with the newcomers.

Pricing is expected to be under pressure in the case of the pumps section. He said, "many unorganized players in this space are competing aggressively on pricing, and if demand falters this year, as witnessed in the past three years, we expect pricing to get more aggressive to liquidate inventories."

Also, dealers are on the lookout for any uptick in demand to adjust their inventories for the upcoming season.

Cables and wires:

Whereas on cables and wires, Nilesh said, tempted by a sudden jump in copper prices in the end of 3QFY23, dealers stocked up on inventory. Demand continues to be good for cables and wires, despite a 5-6% price increase over the past two months. However, copper prices have fallen c7% over the past one month and dealers are expecting prices to correct further, given the global macro volatility."

He added, "Our channel checks suggest that dealers and distributors are reluctant build up a higher inventory. Thus, any sharp correction in copper prices could offset volume growth in cables and wires. We think this is negative for Polycab, which we expect to offer the lowest earnings growth in our coverage universe over FY23-25 thanks to the high-base effect."

White goods:

In this segment of consumer durables, Nilesh said, the footfalls for AC dealers started at the end of February. However, post-Holi, some regions received unseasonal rains, which hurt footfalls. Nonetheless, dealers are confident of a revival in footfalls after the Gudi Padwa festival (22 March 2023) and have provided some additional discounts to lure customers.

Also, prices have remained stable in white goods, the dealers mentioned. If demand revives, most dealers expect some price hikes in the middle of April or May.

Additionally, BNP analyst cited that some dealers expect the competitive intensity to remain high as most brands intend to increase their shelf space. The intense competition offered by Lloyd in 2022 has since waned. However, other brands like Daikin and Panasonic have become very aggressive. The price differential between brands has narrowed, leading to customers switching to well-known brands like Voltas, Blue Star, LG, and Daikin from weaker brands like Amstad and Cruise, among others.

Which consumer durables stocks are hot this summer?

BNP analyst said the " valuations of White Goods and FMEG companies offer higher upside, while we see a downside risk for Cables and Wires companies."

Hence, Havells and Whirlpool continued to be BNP's top picks, while Voltas is its preferred play for the summer. The brokerage's analyst has given a 'Reduce' on PolyCab India due to its rich valuations.


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 28 Mar 2023, 09:49 PM IST
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