Summer stocks to buy: Jefferies bets on Havells, SI, other midcap stocks ahead of searing summer
2 min read 09 Mar 2023, 05:58 PM ISTGlobal brokerage Jefferies in a note said that select midcap companies engaged in manufacturing of fans, air conditioning, refrigerators, agri pipes, air coolers and pumps will emerge as key beneficiaries amid a rise in demand
PremiumThe India Meteorological Department (IMD) has forecasted a strong summer, with 'above normal' temperature across most parts of the country this year. Consequently, investors are catching up on stocks of consumer durable companies, from air conditioning and other related industries.
Global brokerage Jefferies in a note said that select midcap companies engaged in manufacturing of fans, air conditioning, refrigerators, agri pipes, air coolers and pumps will emerge as key beneficiaries amid a rise in demand as the season heats up.
The brokerage sees a 14 per cent sales growth on-year and 110 basis points sequential rise in operating profit margin for six companies including Crompton Greaves Consumer Electricals, Havells India, V-Guard Industries, Amber Enterprises, Finolex Industries and Supreme Industries in the March quarter.
“We foresee CROMPTON, HAVL, VGRD, AMBER, FNXP, and SI as key beneficiaries of a good summer. SI is among our Top Picks. But, in view of stretched valuations and continued margin weakness, we retain Hold on HAVL and WHIRL. ASTRA's (Hold) 9MFY23 volume growth at +20% lags that of SI at 35%," Jefferies said.
"Q4 (Jan-Mar) sales are usually 30-35% of their annual mix. Also, construction activity (Pipes, Tiles) usually peaks pre-monsoons. Margins tend to expand QoQ, given better op-leverage (vols)," the brokerage said.
Jefferies said ACs, refrigerators and fans are key summer-centric products. The brokerage noted that Crompton Greaves Consumer is the market leader in fans with 28 per cent share and residential pumps with 25 per cent-plus share.
Havells India has been posting good sales in Lloyd with 18 per cent of its mix over the last 4-5 quarters, alluding to volume market share gains.
V-Guard's stabilisers (20 per cent of sales), fans and pumps could benefit from a hotter summer.
Whirlpool of India has a stronger franchise in refrigerators and washing machines (60-65 per cent of its mix) than in ACs.
Jefferies noted that Crompton, Havells India and V-Guard also sell air-coolers. "In Q4FY23, we expect average sales growth of 10 per cent YoY for these cos, with 70 bps QoQ expansion in OPM. Historical analysis indicates good seasonality for sales/margins during summers (Q4-Q1)," it said.
For Amber, the brokerage said this company has 70 per cent market share in contract manufacturing of ACs in India, and can be viewed as a demand aggregator for the under-penetrated AC industry in India. "We expect 15 per cent YoY Q4 sales growth, with 70 bps QoQ EBITDA margin expansion," it said.
India is likely to experience heat waves between March and May, especially in the key wheat producing central and northern states, the weather office said last month.
Higher temperatures could also lift power consumption above supplies during the summer season.
The Met office earlier said that February 2023 has been the warmest in 122 years and asked everybody to brace for more heat waves going forward.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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