Consumer Electricals - Healthy Growth In Cables, Wires To Sustain; FMEG, White Goods In Slow Lane: Systematix

Systematix Research Report

Consumer electrical companies could witness another soft quarter impacted due to inflation-led weak consumer sentiment. However, we expect outperformance in cable and wire segment to continue. A ~6% QoQ decline (down ~3% YoY) in copper prices in Q1 on a three-month average rolling basis also aided to healthy growth in cables and wires category.

Demand from the housing and infrastructure sectors stayed healthy. Demand from export markets was also strong. We expect the segment revenue of five companies under coverage to grow at a healthy 13% YoY, led by Polycab India Ltd. and KEI Industires Ltd. Margins are expected to be broadly stable.

In electrical consumer durable, we expect our coverage universe of eight companies to report a low 4% YoY (2% QoQ) revenue growth, led by diversified players such as Bajaj Electricals Ltd. and Havells India Ltd.

On a low base, we expect margins to normalise for all players. Unseasonal rains hurt demand of cooling products such as fans and coolers. While high channel inventory of non-star rated fans got liquidated during the quarter, companies became aggressive on pricing, discounts and schemes to push star rated fans volumes.

Traction in business-to-consumer lighting stayed healthy, with business-to-business and business-to-government seeing higher ordering. Significant price correction in LED products pose a risk on revenue growth in FY24.

Weakness in kitchen appliances extended in Q1 as well. We remain inclined towards cables and wires segment due to its robust growth outlook but with moderate return expectation post significant re-rating in scripts. Bajaj Electricals and Havells are our preferred picks in the pack.

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