Driven by electrical appliances, the Indian consumer durable sector is expected to clock a revenue growth of approximately 20% this fiscal.
The electrical appliances makers (~35% of sector revenues), are expected to grow twice as fast as white goods makers (~65% of sector revenues). This revenue jump is followed by the flattish run last fiscal, says CRISIL Research.
Consumer durables makers have recovered faster than other consumer discretionary sectors such as apparel and jewellery retail, driven by higher demand for home-improvement products during the prolonged stay-at-home period.
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"The growth momentum is expected to accelerate this fiscal on positive consumer sentiment, uptrading and higher realisations. Consumer electricals will continue to outshine with 23-24% revenue growth expected this fiscal, compared with 14-15% for white goods, riding on factors such as shorter replacement cycle, necessity, and smaller ticket size," says Gautam Shahi, Director, CRISIL Ratings.
However, the operating profitability will be a wee bit lower due to costlier inputs and despite price hikes. Despite higher revenues, the sector's margins are expected to moderate by 100-150 basis points (bps) this fiscal.
CRISIL Rating says although the prices of key commodities such as copper, aluminium, and polypropylene (~70% of the raw material requirement of the consumer durables sector) have stabilised, they are 30% higher than the average of the past two fiscals (see chart in annexure). And the impact on profitability will vary due to lower price hikes.
Overall, the sector clocked approximately Rs 2 lakh crore revenue last fiscal, which includes consumer electricals (excluding mobile phones) and white goods. Consumer electrical makers have hiked prices by 8-10% this fiscal, much more than the average 3-4% by white goods makers.
The white goods include washing machines, televisions, refrigerators and air conditioners, and the consumer electricals include fans, small kitchen and cooking appliances, and lighting products among others.
In addition, CRISIL Rating says the operating profitability of white goods makers is seen moderating at 6-7%, marking an impact of up to 200 basis points (bps), compared with 10-11% for consumer electrical makers, which would be an impact of 50-100 bps.
"Despite the dent in profitability, traditional strengths of low leverage (gearing of ~0. 2 times), asset-light business models, and healthy cash accrual will ensure credit profiles remain stable this fiscal," explains Says Sushant Sarode, Associate Director, CRISIL Ratings.
"Over the medium term, capital spending may increase given the government's Production-Linked Incentive (PLI) scheme for white goods components (Rs 6,238 crore spread over fiscals 2022-2029), aimed at increasing indigenisation of imported components. We believe the capital spend is likely to be done in a phased manner, which would ensure credit profiles remain stable," he adds.
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