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Post speaking with white goods and durable companies, we note the key budget expectations are: (1) increase in customs duty to likely to benefit EMS companies such as Amber, Dixon and Syrma, (2) Reduction in customs duty for key components under the IGCR route for motor and compressors will likely result in higher domestic manufacturing, (3) The prices of white goods & durables are up 20-22% over past two years led by high inflation and costs to comply with BEE norms. Hence, industry expects some correction in indirect taxes and (4) initiatives to increase disposable incomes resulting in higher consumption of durables. We continue to remain positive on the sector and our top picks remain Havells India (BUY) and Crompton Greaves (BUY).

Increase in customs duty on certain inputs to benefit EMS companies: Over past 2-3 years, there was increase in customs duty on some of the raw materials used in durables. Any additional levy on imports of raw materials may lead to increase in domestic production. It will likely be beneficial to EMS companies such as Dixon, Amber and Syrma. However, we believe, it may disrupt the production of finished goods in the short term and may raise costs for the companies.

Reduction in customs duty under IGCR (import of goods at concessional rate) route for some raw materials: If the customs duty on components of products such as motors, compressors is lowered under IGCR route, it will likely result in lower costs for white goods and also higher demand.

Reduction in indirect taxes: The prices of white goods and durables have increased by 20-25% over past two years due to (1) high inflation and (2) product changes to comply with BEE norms. However, energy efficiency of most products has improved. If the indirect taxation on white goods is lowered, it will likely result in lower pricing and higher demand.

Tax cuts (if any) and higher disposable incomes to boost consumption: Steep inflation has impacted the disposable income of consumers. Any initiatives to boost disposable incomes via tax cuts or higher government spending will likely result in higher demand for consumer durables. We believe initiatives to step up rural consumption (~20% of durables consumption) could be beneficial.

Sops to boost growth of real estate sector to drive demand for Electricals: Any sops to drive growth of the real estate sector will potentially boost growth of B2B categories such as wires & cables, switches & switchgear and lighting.

Sector view & top picks: Considering the strong return ratios, healthy growth potential and low penetration levels, we remain structurally positive on the white goods and durables sector. We also expect migration from unorganised to organised sector to steadily generate value. Havells and Crompton remain our top picks.

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