ICICI Securities' Top Picks: Stocks To Bet Amid Boiling Crude Oil Prices

The mounting uncertainty over Brent crude prices, which have remained over the $100 barrel level, is having a significant panic impact, as the Russia-Ukraine crisis has made stock markets being bearish on Thursday. In today's stock market closing session, the market bounced back, with the Nifty rising beyond 16,600 points and the Sensex rising over 1,300 points amid the Ukraine conflict. And, despite the speculative market, which has barely begun to recover, and currently underway geopolitical unrest between Ukraine and Russia, which have led to an increase in crude oil prices, ICICI Securities, a domestic brokerage firm, is bullish on the white goods and durables sector, with its top picks being Havells (BUY) and Crompton Greaves (BUY).

Key rationale for being positive stance on the sector as per the brokerage

• Ongoing geopolitical tensions between Ukraine and Russia have likely resulted in increase in crude oil prices. We note, EBITDA margins of the white goods and durables sector have been negatively correlated with crude oil prices historically.
• We have analyzed the cost structure of Havells and note expenses amounting to ~10% of net sales are directly impacted by a change in crude oil prices. Key expenses include power & fuel, logistics, plastic, packaging material and paints. Distributors also incur freight cost ~2% of net sales.
• While increase in crude oil prices impacts the profitability, we note the Durable companies have passed on the increase in costs with a lag of 2-3 quarters. Also, there is sharp recovery in margins whenever crude oil prices have declined in subsequent years.
• The impact of increase in crude oil prices will be higher for smaller / unorganized sector. While there will be profitability impact for all companies, larger players are likely to gain market shares in case of steep inflationary environment.

Top picks by ICICI Securities from white goods & durables sector

The brokerage has claimed "Considering the strong return ratios, healthy growth potential and low penetration levels, we remain structurally positive on the white goods and durables sector. We also expect the migration from unorganised to organised sector to steadily generate value. Havells India and Crompton Greaves are our top picks. Key risks: Higher-than-expected rise in crude oil prices, any delay Research Analysts: in price hikes to protect margins, and irrational competition."

Company	Price (Rs)	M.Cap (Rs bn)	Target Price (Rs)	Rating	RoE (FY23E)	RoCE (FY23E)	EPS CAGR FY21-24E	P/E (x) FY24E
Amber	3,147	106	3,434	HOLD	12.4	13.5	56.7	33.8
Bajaj Electricals	1,082	124.2	1,300	ADD	14.6	16.5	25.5	34.4
Crompton	406	254.8	504	BUY	28.2	36.6	8.6	32.3
Dixon	4,048	240.2	4,500	HOLD	31.4	33	52	42.3
Havells	1,147	718.2	1,650	BUY	21.7	24.1	23.7	36.3
Polycab	2,279	340.6	2,775	BUY	16.4	19.1	12.1	27.6
TTK Prestige	780	108.1	1,050	BUY	17.5	20.7	17.6	28.8
V-Guard	183	78.9	220	ADD	17.8	21.2	19.8	22.8
Whirlpool	1,614	204.7	2,000	ADD	14.7	15.4	21	32.9
Source: ICICI Securities

Disclaimer

The stocks have been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.