Havells, Crompton Shine As BNP Paribas Sees Risk-Reward Favouring FMEGs
Havells continues to be the top pick for the brokerage, while Crompton has recently been upgraded to 'outperform'.
The Indian consumer durables and electronic manufacturing services sectors have displayed notable performance in calendar year 2024, with distinct trends emerging within each segment. However, this year BNP Paribas sees the risk-reward balance appear more favourable for Fast-Moving Electrical Goods over white goods, with near-term challenges already priced in for the latter.
White-goods companies, in particular, experienced a resurgence in stock performance in 2024, driven by strong demand fueled by a harsh summer. This marks a sharp contrast to the two years of underperformance caused by factors such as inflation-led slowdown in discretionary spending, the impact of commodity inflation on margins, the implementation of new energy ratings, and heightened competition.
Looking ahead, however, the risk-reward balance now appears more favourable for Fast-Moving Electrical Goods than for white goods, with near-term weakness already priced in, said BNP Paribas in its note. As a result, there is limited potential for a further re-rating in the cooling and white goods stocks.
Among FMEGs, Havells continues to be the top pick for the brokerage, while Crompton has recently been upgraded to 'outperform,' capitalising on the expected demand surge during the summer months.
Despite the slower growth seen in some white-goods segments, FMEGs, particularly in the context of innovations and energy-efficient products, are expected to be a key driver of growth moving forward, BNP added.
On the electronic manufacturing services front, the sector experienced impressive stock price growth in calendar year 2024, led by companies like Kaynes Technology Ltd., which was up 184% and Dixon Technologies Ltd. that was up 173%. This performance was partially driven by favourable government policies, such as the approval of Kaynes' OSAT and the introduction of the $3 billion components Production Linked Incentive scheme.
Additionally, joint ventures and tie-ups, like Dixon’s partnerships with HKC Corp. and major OEMs, have further boosted the sector’s outlook.
However, the sharp performance in EMS stocks over the past few months calls for caution, BNP pointed out. Despite this, the brokerage remains optimistic about the potential of the government’s PLI scheme and its ability to drive future growth.
Among EMS stocks, Amber and Dixon are favoured, while Kaynes is rated 'neutral'. The combination of continued government support, strong demand across key sectors, and the move toward greater self-reliance positions Amber and Dixon for sustained growth in the medium-to-long term.
