Consumer Durables Getting Back To Normalcy But At A Slow Pace

The second Covid wave disrupted the strong demand momentum in durable and electrical products from mid-April, Emkay Global has said in a report.

"The most impacted were cooling products such as RACs, Fans and Air Coolers. Although the recovery started in June, (with the last 15 days seeing a healthy rebound for cooling products as heat waves continued in North India) the pace of it is slower than last year," Emkay Global has said in its report.

According to the brokerage, Cables & Wires should continue to outperform as the execution of infra projects and construction activities continued without much interruption across the country, with momentum picking up from June.

Channel checks reveal that: 1) the struggle of unorganized players is continuing; 2) recovery rate in Cables & Wires has once again surprised channel partners; 3) the full impact of Q4 price hikes will be reflected in Q1, and companies have intermittently taken price increases in Q1 due to lockdowns and high channel inventory for cooling products; 4) cooling products are seeing healthy recovery, with Jun'21 being largely flat yoy; and 5) competitive intensity remains high in RACs, restricting any price actions despite significant commodity inflation, the firm has said.

"Commodity price inflation is expected to erode gross margins for our coverage universe by an average of 132bps vs. Q1FY21 and 164bps vs. Q1FY20. In our view, quantum of reduction in variable costs would be lower than last year, which would impact EBITDA margins as well.

We expect consumer electrical companies in our coverage to post 71% revenue growth yoy (on a low base) while seeing a 3% decline over Q1FY20, on strong growth in C&W. The C&W segment should see 85% growth on a yoy basis and 11% over Q1FY20, backed by higher prices," Emkay Global has said in its report.