Voltas, Blue Star, Whirlpool Q4 report card to be hit by unseasonal rains, inflationary pressure

Quarter four is generally a strong one for the consumer durables sector due to higher dependence of summer driven products. However, this time the summer led demand did not play out as expected. This was largely due to unseasonal rains.

To push demand, companies did start offering higher discounts, but the continuing inflation pressure did not aid the volume growth. For quarter four of FY23, among all the players, IFB Industries is expected to outperform with a revenue growth of over 20 percent. While other players are expected to see a revenue growth of anywhere between four percent and 15 percent.

Higher competitive pressure and lower volumes are likely to impact EBITDA margins. Blue Star and Voltas are expected to see an EBITDA margin expansion of 20 to 50 basis points (bps), while Whirlpool is likely to see a decline of 20 bps.

In terms of the consumer electrical segment, the outperformance from the largest product category cables and wires is expected to continue backed by high demand from the industrial segment.

For fans, however, primary sales are expected to be lower due to high inventory of non-rated fans. The key outperformers in terms of revenue growth is likely to be Orient Electric - this is largely because of a low base - and Polycab, which is led by growth in the cable segment.

Crompton Greaves Consumer Electricals is expected to see a revenue growth of 18 percent but this is largely due to their merger with Butterfly Gandhimathi.

Higher commodity prices are likely to see an impact on their EBITDA margins. All companies except Bajaj Electricals are likely to see a contraction from anywhere between 20 and 300 bps.

Bajaj Electricals will however, see an expansion due to a lower base.

Crompton is an outlier here. The company will see the highest EBITDA margin contraction due to increase in expenses due to Butterfly integration.

Some things that the Street will be watching out from the consumer durables space is – one, management commentary about the demand revival, two, any price review decisions, whether they revise the outlook on margins, considering the high competitive pressure and three, their future growth or capex plans.

Finally, in terms of the valuations, in the consumer durables space, Voltas is trading at 46 times FY24 P/E, and IFB is inexpensive trading at 22 times FY24 P/E.

In the consumer electrical space, Havells is the most expensive trading at over 50 times FY24 P/E, while the rest of the players are trading anywhere between 30 and 40 times FY24 P/E.

Harshit Kapadia, Vice President- Industrials, Consumer Durables and Electricals, and Renewables at Elara Capital believes that April has seen some demand revival, but pricing remains a concern.

“April has seen some momentum picking up with summer also picking up. So that is partly a good news. However, on the pricing front, the concerns remain,” he said.