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We reiterate that online risk is far more exaggerated than on-the-ground reality, especially for large home appliances. Our conviction is backed not only by a CRISIL study, expert interactions and channel checks (highlighted in our IC report), but also by our analysis of global online penetration for large durables (given in this note). Euromonitor (Haier IPO document) mentions that global online mix is ~20% (CY17-19) and physical retailers are bound to retain a dominant share, owing to competitive pricing, fresher inventory, assisted sales, touch & feel experience and unbeatable consumer service. The study has also boosted our confidence on growth in India, given: i) its extremely low penetration of large kitchen appliances (vs ~27% global), ii) its premiumization potential (Rs16-18k/unit realization for WM/Ref vs 30-40k globally), iii) it is a key growth driver for global brands. We expect AVL to outpace retail peers with over 30% EBITDA CAGR in FY23-27E; retain BUY and TP of Rs5,000/share.

Online risks exaggerated; B&M channel preferred for large appliances

As per a Euromonitor report, online share remained 17-19% of global consumer-durable sales over CY17-19. While e-retail share has definitely seen an increase, it remains at ~20% for developed nations as well. Haier, a leading consumer-durable OEM in China, registered e-retail contribution of ~15% to China sales over CY17-19. Share in H1CY20 saw an increase to 23%, due to the obvious pandemic-induced slowdown in physical channels. For India as well, online share has been sub-20% for large appliances (Exhibit 2) and a major disruption has been witnessed only in the digital gadgets category (mobiles, PCs and wearables). We expect brick & mortar retail stores to remain the goto destinations for consumers, especially for large appliances, due to competitive pricing, fresher inventory, assisted sales, touch & feel experience, unbeatable consumer servicing and better financing options.

Volume curve flattens for developed nations; India emerging as a growth driver As per Euromonitor (Haier IPO document), Asia (ex-China) is expected to drive the volume growth for consumer durables, with 3.3% CAGR over CY19-24 compared with 1.6% CAGR globally and flat volume expectation for developed nations due to high penetration levels. To capitalize on this, all leading OEMs are ramping-up their presence in India which should improve the negotiating power of Indian retailers, who should hence continue enjoying the ongoing brand support for a long period, in our view. In addition to volume growth, realizations in refrigerators (Ref)/washing machines (WM) stay much below the global average and premiumization remains a huge growth driver for the Indian market. Indian realizations are at Rs16-18k/unit for WM/Ref vs 30-40k in globally (Exhibit 4). The current lower realizations in India are due to higher mix of semiautomatic washing machines, single-door refrigerators and smaller-size televisions which provide scope for continued premiumization in the domestic market.

AVL in sweet spot, with regional dominance in poorly-penetrated markets

Basis the above macro scenario and scope for premiumization, our confidence on growth in AVL has certainly improved. With scale, brand support and first-mover advantages, we expect AVL to capitalize better on such tailwinds and deliver over 30% EBITDA CAGR during FY23-27E. Payback periods are also best-in-class, at under 3 years, and are better than the best retail peers’. Despite superior prospects, AVL is currently trading at a ~35% discount to retail peers. We re-iterate BUY on AVL, with unchanged Dec-24E TP of Rs5,000/share (40x Dec-25E EPS).

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