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Outlook CY22: Kitchen appliances, premiumisation and emergence of new categories to drive growth

Consumer durable companies reported higher margins in CY21E YoY, despite steep input material inflation and supply chain constraints. While there was some impact on revenues in H1CY21 due to severe second wave of covid (Apr-Jun), demand returned stronger led by large vaccination drives across the nation in H2CY21. There was a rise in ecommerce share in channel mix. In CY22, we model consumer durable companies to report flat margins YoY. New categories such as trimmers, hair dryers and dishwashers would likely drive strong volume growth. We model consumer durable companies under our coverage to report revenue in mid-teen digits in CY22 YoY. Our top picks: Havells India (BUY), Crompton Greaves (ADD) and Whirlpool of India (ADD).

* What happened in CY21: Price index return of consumer durables companies under our coverage is 41.8% in CY21 YTD. Bajaj Electricals and Dixon reported highest returns of 110% and 99%, respectively, during the time frame. Revenue growth of consumer durable companies was in mid-teens in CY21E YoY (except Dixon). PAT growth was in low double digits across our coverage.

* Input material inflation and price hikes: In CY21, there was steep inflation in the price for key raw materials (copper, steel, aluminum and HDPE) used in consumer durables. While initially this dented profitability of companies, timely price hikes and cost-saving initiatives largely nullified its impact on the bottom line.

* Higher share of ecommerce: Ecommerce emerged as the sunrise channel during covid restrictions. TTK Prestige reported ~30% of its Q2CY21 sales from ecommerce channel itself and expects it to contribute at least 20% of total sales going forward. We model ecommerce to be a major sales channel in CY22E.

* What to expect in CY22: We expect the impact of input material inflation to be largely over in CY22E. We strongly believe kitchen appliances, premiumisation efforts and emergence of new categories would likely drive strong revenue growth for the sector. We model mid-teen revenue growth across all companies. Due to strong operating leverages, we expect most companies to report PAT growth higher than revenue growth.  Sector view and top picks: Considering strong return ratios, healthy growth potential and low penetration levels, we remain structurally positive on the white goods and durables sector. We also expect the migration from unorganised to organised sector to steadily generate value. Havells India, Crompton Greaves and Whirlpool of India are our top picks.

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