IGI Logo

Heavy discounting in kitchen Appliances impacts performance; maintain Neutral

Result Synopsis

Consumer products (CP) business registered revenue decline of 8% as kitchen appliances and GT (contributing 62% to revenue) has seen de-growth on muted demand and high discounting. Fans and Morphy Richards have seen single digit growth with premium fans growing faster than the economy fans. Margins were impacted on account of lower gross margins which was marred by high discounting in the muted environment. BJE had higher impact discounting as they had to clear old models by providing higher discounts as they have been aggressive in launching new models. Lighting revenue decline was on account of LED price erosion in consumer lighting and higher base effect in professional lighting. Company expects Appliances to recover closer to festive season and margins would follow post that. We have lowered our revenue estimates on increased competition and muted demand environment. We continue to maintain our Neutral rating on the stock with PT of Rs1,009 valuing the stock at 38x. Although the lead indicator that drives the consumption has been trending positive in Q4, we would however wait for the confirmation before we become constructive on the stock. Demand has been alluding and now company believes appliances will start growing from the festive season, ill then Fans, coolers and water heaters will be growth drivers. Competition continues to behave in the irrational manner and have been resorting to discounting delaying the margin expansion for the company. BJE has been on right path with more focus on preimmunizing its portfolio and launching more products at the premium end. We now bake in revenue growth of 20.1% and 10.4% for FY25 (on low base) and FY26 respectively. We continue to maintain Neutral with PT of Rs1,009 valuing the company at 38x. We expect the stock to re-rate once there is sustainable improvement in profitability and pick-up in rural demand.

Result Highlights

* Business Update – Revenue declined 8% yoy owing to weak consumer demand especially in appliances. Fans and Morphy Richards has registered high single-digit growth, with premium products growing faster than the economy segment.

* Margins – Margins have been under pressure due to heavy price discounting in a weak demand environment and further BJE had to offer higher discounts to clear the old products

* A&P Spends & Price hikes – A&P spends continues to be ~3% for Q4 as well as for FY24. The company has not taken any price increase in Q4, while they have increased prices in Q1 which will be effective May 16th.

* New launches – Company continues to step up new launches at the premium end with more focus on the Nex brand. The company has launched 47 SKU’s in the Fans and the Appliances segment, 8 in Morphy Richards and 18 SKU’s in Kitchen space.

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