The consumer durables industry performance was a mixed bag in the fourth quarter of financial year 2022-23. Within the electricals segment, fans category sales, remained under pressure owing to channel overstocking, while cables and wires segment stood out as a pocket of strength. Most white goods players benefited from the usual seasonal pick-up, yet some reported revenue declines. Performance in the lighting segment was varied.

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Wires and cables segment outshines due to strong infrastructural demand

Polycab was a clear outperformer with its cables and wires segment revenues growing 15 percent and 44 percent on the operating profit level. Its peers grew in the range of 3 to 8 percent. KEI and Finolex witnessed significant margin expansion, while V-Guard suffered margin contraction and Havells reported flat margins. A volume growth boosted the revenues in the quarter under review. Margin accretive exports for Polycab is what boosted its revenue growth.

Source: Kotak Institutional Equities

Seasonal tailwinds did not benefit much of white goods makers

Even with seasonal tailwinds, white goods witnessed a moderate pick up in demand. Blue Star outperformed the pack, while IFB reported a significant narrowing in its operating losses. Peer Voltas lost market share for another consecutive quarter, while Whirlpool and Hitachi failed to grow its revenues. V-Guard’s consumer durables segment noted 3 percent decline and turned loss making at the operating level. Bajaj Electricals’ consumer products division revenue grew 9 percent despite demand slowdown and pricing constraints.

Source: Kotak Institutional Equities

Overstocking of older models kept fans segment under pressure

Amidst slow channel filling before Bureau of Energy Efficiency (BEE) rating implementation and commodity-led destocking, fan makers saw industry-wide weak. Crompton was the only company to report revenue growth in this segment. Though this comes after posting a sharp decline in the preceding quarter and for second half of financial year 2022-23 overall. Bajaj was the only company to report year on year growth in its operating profit even after having a weak show in the fans segment. Fan makers expect healthy sales in the September ended quarter once channel inventory is cleared.

Lighting category not so bright

The lighting segment witnessed a mixed performance in the fourth quarter. Orient stood out as the only player delivering double-digit revenue growth of 12 percent year on year in the lighting segment. Havells’ lighting segment sales improved meagre 4 percent, while Crompton’s revenues from this segment declined 12 percent reflecting continued underperformance. Bajaj Electricals’ softness in lighting segment continued in the fourth quarter with flat revenues growth.

Source: Kotak Institutional Equities

What to expect in FY24 ?

Fan makers are clearing high-cost inventory and with a healthy underlying demand, supported by stable raw materials costs, revenues and gross margins are expected to rise in the second half of FY24. Of the total fan sales currently, 75 percent are sold at a price point below Rs 2,500.

In the Room air conditioners segment, Hitachi, Lloyd, Whirlpool and LG lost market share to Blue Star and Voltas in April, while 7 to 8 percent price hikes affected demand. Voltas' market share sustainability is key as players like Blue Star, Lloyd, Daikin and LG India are expected to expand their manufacturing facilities during the year. Blue Star's summer sales were disappointing with with near nil growth year on year, however, festive season is expected to see a pick up in demand.

Within the home appliances segment, Whirlpool, Samsung and Haier were the preferred brands over LG and Godrej in refrigerators category during April, according to a dealer survey by Kotak Institutional Equities. The offtake in summers during first quarter will be a key monitorable for makers of cooling products.

In an ongoing inflationary environment, promotional offers may take precedence over brand loyalty. Furthermore, a large proportion of sales takes place on short term loans. Hence, attractive EMI offers affect consumers' purchase decisions. Bajaj Finance holds the dominant position in providing financing support.