Published on 26/01/2021 12:22:36 PM | Source: Motilal Oswal Finacial Services Ltd

Consumer Goods Sector Update - Strong primary sales to aid growth across categories By Motilal Oswal

Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel 

Download Telegram App before Joining the Channel

Strong primary sales to aid growth across categories

We carried out a channel check across various categories of Consumer Durables and Consumer Electricals, following are the key takeaways:

* Commodity inflation continues: Various commodities are witnessing a 15-30% YoY surge in prices, thereby raising concerns over input costs. For instance, copper is up 28%, steel over 30%, and aluminum more than 14%. Even plastic prices are seeing a strong upsurge, with polypropylene rising by 18% YoY in 3QFY21. Our channel checks suggest that most companies within the Consumer Durables and Consumer Electricals sectors have already initiated price hikes across various product categories.


* Television sets, Washing Machines witness highest price hikes: Categories like TV sets and Washing Machines (front load version) witnessed price hikes between 6% and 8% by various leading brands. The same in Refrigerators and Air Conditioners have been ~4-5%. In Consumer Electricals, prices of Fans and Water Heaters increased by ~4-6%. Prima facie, this is a straight pass-through of a rise in input costs.


* Later part of Dec’20 witnesses strong channel filling: Demand in the initial part of Dec’20 was largely muted due to higher offtake during the festive season (Nov’20). Towards the end of Dec’20, dealers and distributors stocked material as price hikes across various Consumer Durables and Consumer Electricals category were imminent. Hence, primary sales for leading brands have been healthy towards the end of Dec’20.


* Large part of the price hike to reflect in 4QFY21 sales: Various companies across the Consumer Durables and Consumer Electricals sectors indicated price hikes in between 1-Jan’21 and 15-Jan’21. Hence, most channel partners resorted to pre-buying towards the end of Dec’20. We expect a large part of the price hike benefits to accrue in 4QFY21 for these brands.


* Secondary sales still lagging behind; but channel hopeful of a strong showing: Though primary sales have picked up from end of Dec’20, secondary sales are yet to show similar traction. This had led to higher build-up of inventory for ACs, Refrigerators, Fans, and Air Coolers. Across channel partners, the average inventory currently stands ~35-45 days, with higher inventory in ACs, Fans, and Air Coolers owing to the upcoming summer season. 4QFY21 would be the real test as the effect of pent-up demand wanes.


* Changing consumer trends may be temporary in nature: Dishwashers and Dryers have suddenly seen good pent-up demand since the entry of maids in households is restricted. With gradual easing, demand for Dishwashers has now moderated. Washing Machines saw pent-up demand as continuous use since the last two to three months had led to the wear-and-tear of machines older than three years. TVs saw an interesting trend as its off-take increased, with consumers opting for larger screens and better sound systems. This trend has continued as most TV sales across channels was for a higher configuration. Microwaves saw healthy growth, with good sales in the OTG category. While these changes may be short term in nature, the altered trend in TVs may stay for longer as theatres are operating at 50% capacity, with most producers opting to move their releases to over-the-top (OTT) platforms.


* Rise in e-commerce sales for small appliances; subdued for Consumer Durables: Since the COVID-19 led lockdown began in Apr’20, many in the industry were of the view that e-commerce would pick up strongly going forward. This trend has played out for smaller appliances like Personal Grooming Products, Mixer, Juicer, and Coffee Machines. For appliances like Fans, ACs, Refrigerators, and Washing Machines, sales were largely via the offline channel. Microwaves do witnessed some traction via online sales until the Diwali season on the back of attractive discounts and schemes.


* Downtrading trend absent thus far: Even as downtrading was expected due to slackness in the economy, the opposite has happened with an increase in an offtake of premium products across categories. This can be attributed to higher wear-and-tear of existing components/machines owing to their higher use during the lockdown.



To Read Complete Report & Disclaimer Click Here


For More Motilal Oswal Securities Ltd Disclaimer SEBI Registration number is INH000000412


Above views are of the author and not of the website kindly read disclaimer