Consumer Durables Sector Overview
In its earnings preview for Q2FY25, domestic brokerage firm Prabhudas Lilladher indicated that the consumer durables sector is grappling with weak demand. This downturn is largely attributed to a lukewarm festive season start and unexpected heavy rainfall impacting consumer spending patterns. Nevertheless, the Wire and Cable (W&C) segment has shown resilience, owing to strong cable demand propelled by ongoing infrastructure projects.
Sector Growth Predictions
Prabhudas Lilladher forecasts an overall sales growth of 11.5%, EBITDA growth of 14.5%, and PAT growth of 20.1% year-on-year (YoY) for its consumer durables universe in Q2FY25. Notably, companies such as Polycab and RR Kabel are expected to excel, while Bajaj Electricals may see underwhelming sales figures. In terms of profitability, Crompton Greaves Consumer Electricals, Havells, and Voltas are predicted to exceed market expectations.
Market Dynamics in the Wire and Cable Segment
The brokerage emphasizes that the B2B cable market should sustain its positive trajectory, backed by infrastructure growth. A notable decline in copper and aluminum prices—down 5.2% and 5.3% QoQ respectively—has fostered steady volume growth. However, domestic wire demand remains subdued, with an uptick in raw material prices in September 2024 causing channel stocking activities, leading to some volume recovery.
Key Players in the Market
Noteworthy potential revenue growth has been projected for KEI Industries, anticipating an 11.7% YoY increase, primarily fueled by the W&C segment, which is expected to rise by 11.8%. The company is also poised to see substantial gains of 15% YoY in low-tension (LT) cables and 16% in high-tension (HT) cables. The expected growth from the EHV (Extra High Voltage) and wire segments is forecasted at 10% and 7% YoY, collectively representing 53% of the company’s overall revenue.
Polycab and RR Kabel Performance
For Polycab India, the projections indicate a robust sales increase of 15.7% YoY, driven by a steady 10% growth in the wires and cables segment and a 3.5% rise in the Fast-Moving Electrical Goods (FMEG) sector. The brokerage also estimates an EBITDA margin of 13.1% and a PAT growth of 3.9% YoY. Similarly, RR Kabel is expected to register 15.2% YoY revenue growth, supported by a 15% increase in the W&C segment. Additionally, while the FMEG business shows a promising 17% YoY growth, the EBITDA margin may see a reduction to 6.6%, largely due to tough export conditions and ongoing losses in the FMEG sector.
Seasonal Demand Trends
The fan segment has experienced sluggish demand due to the rainy season; however, companies have opted for price hikes in this category despite the trends. In contrast, small appliances have not witnessed similar price adjustments. Looking ahead, the brokerage expects a rebound in demand as the festive season approaches in Q3FY25 and Q4FY25, projecting a growth of 7% YoY in the FMEG segment.
Room Air Conditioners Outlook
Despite traditionally being a weak season, the Room Air Conditioner (RAC) segment is projected to achieve a growth of 13.5% YoY, fueled by channel restocking following significant inventory reductions in Q1 FY25. Voltas’ Unitary Cooling Products (UCP) segment is also forecasted to record a sales growth of 12%, while Lloyd is expected to increase its sales by 17% YoY, with improvements in margins for both entities.
Investment Recommendations
In the wire and cable segment, Prabhudas Lilladher has identified Polycab, KEI Industries, and RR Kabel as top picks. The brokerage has set a target price of ₹8,741 per share for Polycab India, ₹2,178 per share for RR Kabel, and ₹5,265 per share for KEI Industries. Furthermore, the firm has assigned a ‘buy’ rating to Crompton with a target price of ₹536, confident in its ability to sustain growth despite the current demand hurdles.
