Consumer durables raise hopes on stalled demand

Manufacturers of air-conditioners and other cooling products were hit hardest by the second wave as the peak sales period of summer washed away. The business of Voltas Limited, Blue Star Limited, Lloyd’s Havells Limited and Symphony Limited were affected during this period. According to data from HDFC Securities Ltd, the revenue of cooling product manufacturers witnessed a decline of 24% in the June quarter on a compound annual growth rate (CAGR) basis in two years.

Electrical consumer equipment or durable goods manufacturers are in a comparatively better position. Rising market share from unorganized manufacturers, low supplies from China, work-from-home culture and less reliance on seasonality have helped them inflict severe blow on their earnings. The two-year CAGR of electrical consumer durables (ECD) sales was negative 13% during the June quarter.

The selling trend for ECDs has been encouraging ever since the easing of second wave restrictions. Analysts at Motilal Oswal Financial Services Ltd said in their recent note, “Post June, demand for electricals has been strong, while the real test for white goods will be the upcoming festive season.” The recently concluded Onam festival in Kerala was, however, disappointing, perhaps due to the rising Covid-19 cases in the state, he said. The southern part of India also remains a weak link in terms of sales of air-conditioners. This is the reason why shares of Blue Star, which is the flagship of the South, have outperformed their competitors over the past month.

During the June quarter, sales in north India were higher than those in south, benefiting firms like Voltas. Voltas shares have gained 15 per cent in the past one month. Moreover, restrictions were more intense in the south than in the northern and eastern states, analysts at HDFC Securities Ltd pointed out.

Meanwhile, rising commodity costs have been both a boon and a curse for the firms. Higher prices of aluminum and copper have driven up the prices of cables and wires, leading to increased prices for companies.

At the same time, growth in sales of lighting and fixtures has weakened. That said, demand is expected to pick up from the housing and industrial sectors. Against this background, manufacturers such as Polycab Ltd and Havells are in a better position for growth.

Rising costs mean that margins for firms have come under pressure. As such, copper, aluminum and steel prices rose 14%, 17% and 12%, respectively, on a sequential basis for the June quarter. In order to pass on higher costs through price increases, firms need to see a revival in sales.