IGI Logo

Positive sentiments leads demand revival

* Green shoots visible on demand front: After a peculiarly sluggish Q1 demand, and largely flood-impacted early July across India, initial signs of a demand revival are gradually becoming evident. Mid-July onwards, the demand has been trending up better than expected. Notably, tier III, IV and V cities have led this reversal and the prospects are brighter for the festive season ahead. Conversely, urban demand has endured some fatigue. Having said that, dealers expect it to bounce back in the festive cheer.

* Below par channel inventory to boost primary sales: Inventory across product categories has been 10-15% lower than normal levels given that dealers/distributors did not pick it up fearing damage from the floods. Now that the situation is back to normal, they are placing orders for the upcoming festive season with discernible confidence.

* B2B business continues to outperform B2C: B2B businesses are growing steadily across sectors like cables, commercial refrigeration, industrial lighting, façade lighting and street lighting. Dealers are confident of strong growth in upcoming quarters given the strong government spends at local levels. The strong order pipeline hints at a double-digit growth in FY24.

* Independence Day sales soar high: Independence Day sales, which constitute ~3- 5% of the total sales, have grown by 25-30% on yoy basis, led by electronics items like mobile phones and Laptops followed by washing machines and RAC. ASP for the large retailers have gone up by ~6%. Inventory for almost all product categories is now at normal levels.

* Fading price discounts: Discounts offered in certain summer product categories like RAC and Fans have discernibly reduced in August. Most fringe brands had been clearing the inventory by giving additional discounts, but now with inventory levels largely normalized, discounts have waned.

* Stable product pricing to lead improved demand: Prices of key commodity like copper and aluminum have largely remained stable leading to stable product prices. This is much needed relief to companies which can now focus on marketing of the products rather than worrying about pricing.

* Rural demand looking up: Demand in rural areas has shown initial signs of pick up in June, and the momentum is intact across July and August. Entry level products have started outgrowing premium products. Dealers are hopeful that festive season growth would be led by entry-level and mass premium products given an upbeat rural demand.

* We turn Neutral to Positive on the Sector: Given the positive feedback from the channel coupled with initial signs of B2C revival and a buoyant festive season sale likely, we have turned positive on the sector, changing the earlier stance of Neutral.

* Our view: Given positive festive sentiments being echoed by dealer/distributors and upbeat B2B business marked by strong orders and lower than normal inventory levels, we expect better-than-expected growth for our coverage universe in ensuing quarters. Our preferred sector picks include Orient electric, Havells India, Stove kraft, TTK Prestige, Blue star, and Whirlpool India.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

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