Driven by electrical appliances makers, the Rs 2 lakh-crore consumer durables sector is set to report a robust 20 per cent revenue growth this fiscal after a flattish run last fiscal, says a report.
Revenues of electrical appliances makers are expected to grow twice as fast as white goods makers, forming 65 per cent of the sectoral revenues this fiscal (which traditionally is only 35 per cent of the sectoral revenue), Crisil said in a report on Wednesday.
Operating profitability will be a tad lower due to costlier inputs despite price hikes, though, the report said, adding credit profiles will be stable on healthy revenue accruals and low leverage.
The Crisil report is based on the analysis of 15 companies which account for 45 per cent of the sectoral revenue.
The sector, which clocked Rs 2 lakh crore revenue last fiscal, includes consumer electricals (excluding mobile phones) and white goods.
White goods include washing machines, televisions, refrigerators and air conditioners while consumer electricals include fans, kitchen and cooking appliances, and lighting products among others.
During and after the pandemic, consumer durables makers have recovered faster than other consumer discretionary sectors such as apparel and jewellery, driven by higher demand for home-improvement products during the prolonged stay-at-home period.
An analysis of nine listed players which contribute a quarter of the industry revenue, shows consumer electricals (growth of 4.3 per cent) rebounded better than the white goods segment (de-growth of 7 per cent) last fiscal.
The growth momentum of the white goods industry is expected to accelerate this fiscal on positive consumer sentiment, uptrading and higher realisations.
Consumer electricals will continue to outshine with 23-24 per cent revenue growth this fiscal, compared to 14-15 per cent for white goods, riding on factors like shorter replacement cycle, necessity, and smaller ticket size, the report said.
Despite higher revenue, the sectoral margins are expected to moderate by 100-150 basis points this fiscal on the spike in input cost.
Prices of key commodities like copper, aluminium, and polypropylene which constitute 70 per cent of the raw materials for sector) though have stabilised, they are still 30 per cent higher than the average price in the past two fiscals.
The impact on profitability will vary due to lower price hikes.
Consumer electrical makers have hiked prices by 8-10 per cent this fiscal, much more than the average 3-4 per cent by white goods makers.
Accordingly operating profitability of white goods makers is seen moderating at 6-7 per cent, leaving a 200 bps impact, compared to 10-11 per cent for consumer electrical makers, which would be an impact of 50-100 bps.
Despite the dent in profitability, traditional strengths of low leverage, asset-light business models, and healthy cash accrual will ensure credit profiles of the industry this fiscal and will remain stable.
Over the medium term, capital spending may increase given the PLI scheme for white goods components (Rs 6,238 crore spread over fiscals 2022-29).
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