Sharp increases in oil and metal prices have led to increases in key raw material costs, prompting ICICI Securities to maintain its bullish position in the consumer durables sector. As per the brokerage "Sharp increase in crude and metal prices led to increase in key raw material prices of our coverage universe in the range of 9% to 48% YoY during Q4FY22."
ICICI Securities has said the key raw materials for paint and adhesive companies are Titanium Dioxide (TiO2), and vinyl acetate monomer (VAM). Prices of TiO2 and VAM have moved up by 30% and 20% YoY, respectively, during Q4FY22 following the surge in crude price. Companies have already taken price hikes in the range of 15-20% till 9MFY22 and ~5-6% of price required to offset high raw material costs. We cut our earnings estimate for paint & adhesive coverage companies by 13-16% for FY23E led by a cut in EBITDA margin. We revise our target price while we maintain our ratings
ICICI Securities has claimed "Consumer electrical players have taken price hikes in the range of 15-17% during 9MFY22 to offset higher raw material prices. The key raw materials (aluminium, copper, HDPE) prices have further increased in the range of 9% to 48% YoY during Q4FY22. We believe, after steep price hikes in 9MFY22, companies now have very limited room for price hikes. We cut our earnings estimates by ~16% for coverage companies led by downward margin revision. We maintain our positive stance on Havells, Polycab and V-Guard."
The brokerage further noted that "HDPE and LDPE prices have increased by 9% and 17% YoY, respectively, during Q4FY22. We believe piping companies will partially pass on the cost pressure by taking further price hikes. We cut our earnings estimates by 12% and 7% YoY for Supreme Industries and Astral Ltd, respectively, for FY23E."
Lower than expected volume offtake due to significant price increase and substantial decline in raw material prices are the key risks for the sector as per the brokerage.
Consumer Discretionary Goods & Services (CDGS) Stocks To Watch
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|Source: ICICI Direct Research|