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2Q is a seasonally weak quarter for Consumer Durables sector, except for the category of Washing Machines. Based on our channel checks, we expect following key themes to play out in 2QFY24 (1) Overall demand is likely to remain soft as consumers restrict their spending, (2) Sharp rise in competitive intensity would exert pricing pressure, (3) Softer commodity costs will continue to improve gross margin, yet lack of scale and higher discretionary spends (ad-spend, travel, sales promotion) would limit EBITDA margin expansion and (4) growth in premium products will continue to outpace mass / economy variants. Among product categories (1) Cables and wires will likely sustain robust growth momentum led by infra/industrial demand and export markets, (2) Fans and kitchen appliances are likely to report low double digit value growth, (3) Lighting sales are likely to de-grow YoY amid weak demand and lower realizations from falling LED prices, (4) Washing Machines is likely to post a low double digit growth amid peak season, (5) RAC and Refrigerator is likely to see high single digit growth YoY. For Q2FY24, we expect our coverage universe to report 11% YoY growth in revenue at Rs197bn while EBITDA margin is likely to expand by 70bps YoY to 7.9%.

Consumer Durables preview

Sales of cooling products such as Air Conditioners and Refrigerators is expected to be in high single digit YoY. However, pricing pressure remains intense, especially in mass and economy segments as entry level brands aims to grab market share through aggressive pricing while premium brands have also forayed in mass category through tactical price reduction. Washing Machines is likely to grow in low double digit as 2Q is a seasonally strong quarter for this category. In Q2FY24, key outperformers in terms of revenue growth are likely to be VOLT (+17% YoY led by ramp up in projects segment) and BLSTR (+13% YoY led by continuation of strong execution of strong projects’ order book). For the Consumer Durables coverage universe, we expect revenue growth of 12% YoY at Rs71.3bn. Operating margin for the universe is likely to expand by 60bps YoY to 5.2% with key outperformers being VOLT (+80bps YoY), BLSTR (+20bps YoY) and WHIRL (+20bps YoY). Coverage PAT likely to rise by 22% YoY to Rs2bn, mainly driven by the outperformance of BLSTR (+31% YoY).

Consumer Electricals preview

Volume growth for the largest product category of Cables & Wires has remained healthy from industrial, infrastructure and residential sectors while realizations will also be favorably aided by higher copper prices YoY (average price up 8% YoY in Q2FY24). Fans growth is likely to be in low double digit, as the industry partly recovered post the unseasonal rains in Q1FY24. Lighting category is likely to see a de-growth in sales on YoY basis (broadly flattish QoQ) as the industry suffers from low demand and falling LED prices. Growth in Kitchen Appliances segment likely to be in lower double digit. However, the industry is witnessing heightened competitive intensity as large FMEG/durable/retail players have forayed into kitchen appliances through inorganic route. The trend of growth in premium products outpacing mass/economy products is likely to continue. In Q2FY24, key outperformers in terms of revenue growth is likely to be POLYCAB (+17% YoY, led by healthy growth in wires and cables), Orient Electric (+12% YoY on a low base) and VGRD (+11% YoY). For the Consumer Electricals coverage universe, we expect revenue growth of 11% YoY at Rs126bn. Bottom-line is expected to grow by healthy 25% YoY to Rs7.8bn, largely driven by out-performance of key cable and wire brands such as Polycab India (+30% YoY), Havells (+41% YoY on a low base) and VGRD (+16% YoY).

Key things to watch for

(1) Management commentary about demand revival (outlook on when the consumer spending is expected to revive), (2) Any price review decision by brands, (3) Revised outlook on margin profile for FY24 considering high competitive intensity and (4) Future growth/capex plans

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