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With consumer sentiment impacted by the inflationary environment, demand remained weak in the electrical consumer durables (ECD) segment in 2QFY23 as well (continuing from the later part of 1QFY23), more so in rural markets and economy segments. However, encouraged by e-comm sales (Sep’22 end), the industry is optimistic of demand recovery in 2HFY23 aided by a) festive sales, b) good monsoon and healthy MSP-led rural recovery, and c) softening RM prices. We estimate companies in our coverage to post 15%/ 19%/ 18% CAGR in Revenue/ EBITDA/ PAT respectively (on a 3-year basis; low YoY due to pent-up demand post Covid-19 2nd wave). Within our coverage universe, we expect strongest revenue growth (3-year CAGR) in Havells and Stove Kraft while Havells, Stovekraft and Bajaj Electricals (on EPC turnaround) will show highest PAT growth. Key RM prices have softened recently, benefits of which are likely to accrue from 2HFY23 onwards, thereby aiding margin recovery. We continue to be positive on the space from a medium to long term perspective given macro tailwinds (low penetration for some categories) and category expansion opportunities for companies. Our top picks are Bajaj Electricals (BEL) and Crompton Consumer.

Demand continues to be soft in 2QFY23; economy segment remains subdued:

 Softness in demand witnessed towards the end of 1QFY23 has sustained for most of 2QFY23 as well due to the rising inflationary macro-environment. Our channel checks suggest demand trends remain weak, more so in rural markets and economy segments. Primary sales of wires and cables continued to be impacted by softening copper and aluminium prices. For 2QFY23, we expect companies under our coverage universe to report Revenue/ EBITDA/ PAT growth of 6%/ -7%/ -12% YoY (+15%/ +19%/ +18% on a 3-year CAGR basis).

We note reduction in copper prices is likely to expose risk of earnings downgrades for companies with higher wires and cables exposure as it would lead to a) reduction in sales value for cables and wires players, and b) could have modest impact on margins in the immediate 1-2 quarters (in % terms).

Key RM input prices soften QoQ; full benefits to accrue only in 2HFY23:

: Although demand has remained weak over the past few months owing to the inflationary enviornment, demand during e-comm sales towards the end of Sep’22 was encouraging. Moreover, industry remains optimistic on demand recovery in 2HFY23 aided by a) festive season sales, b) good monsoon and healthy MSP leading to recovery in rural markets, and c) stability in input cost enviornmen

Notwithstanding near-term demand challenges, we remain positive from a medium to long term perspective given macro tailwinds, low penetration for some of the categories and category expansion opportunities for companies. Our top picks are Bajaj Electricals (BEL) and Crompton Consumer. Key Risks- Delayed recovery and heightened competitive intensity

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