Consumer Electricals Sector Check - ECD Recovery Still Away; Cables, Wires' Traction Sustained: Systematix

Systematix Research Report

Q3 FY24 results and key trends:

Aggregate revenue/Ebitda/profit after tax of eight companies within our coverage universe (up 10%/5%/6% YoY, up 6%/1%/3% QoQ) came 4%/15%/15% below our estimates owing to continued subdued results of fast moving electrical goods divisions marred by weak consumer sentiment towards discretionary spends.

Management of leading FMEG companies remained optimistic about recovery Q4 onward without any meaningful signs visible yet. Basis 9M results, we cut FY24E earnings estimates but kept it broadly same for FY25E/26E for our coverage FMEG companies.

Momentum sustained in the cables and wires industry on continuing healthy traction in housing and infrastructure activities. Consolidated revenue of five leading companies under our coverage grew healthy at 14% YoY and 4% QoQ (broadly in line) driven by robust volumes in cables.

Polycab India Ltd. (up 17% YoY and 3% QoQ) led the pack followed by KEI Industries Ltd. (up 15% YoY and 6% QoQ). Wires segment faced some slowdown and thus restricted YoY revenue growth of Havells India Ltd. (up 11%), V-Guard Industries Ltd. (up 8%), Finolex Cables Ltd. (up 8%) and RR Kabel Ltd. (up 9%).

Copper price was flattish QoQ (up 5% YoY) in Q3 on a three-month rolling basis. We broadly maintained our FY25E/26E earnings estimates of cables and wires coverage companies post Q3 result.

Outlook:

For FMEG, amid general weak consumer sentiment towards discretionary spends, management continued to sound optimistic about recovery Q4 onward without any meaningful signs visible yet.

Our sanguine outlook on the C&W industry factors in continuing healthy traction in housing and infrastructure activities; moderate returns in scrips are expected after significant re-rating in last one-two years.

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