Global brokerage Morgan Stanley has a mixed perspective on the domestic fast-moving electrical goods (FMEG) sector, taking a stock-specific outlook. The brokerage expressed its optimism for companies like Havells, Polycab, and Voltas, while taking a cautious stance on Crompton Greaves and Bajaj Electricals.
Morgan Stanley reiterated its overweight call on Havells India, and expects the cable-maker to post 26% earnings CAGR over FY24-27, which is the highest across its FMEG coverage universe. Havells' earnings growth will be driven by further capacity creation in the Cables & Wire space, combined with category expansion in ECD.
Consumer durables company Polycab India also bagged an overweight call from the brokerage, as multiple sectors are driving growth in its Cables & Wires segment.
Morgan Stanley upgraded Voltas to 'overweight', up from 'equal-weight' earlier, pencilling in the expectation of 21 percent earnings CAGR from FY25 to FY27. The firm's growth is likely to be driven by strong volume growth in the UCP (unitary cooling products) business, with moderate margin expansion. The worst is likely behind for Voltas' project business.
However, Crompton Greaves Consumer Electrical was downgraded to 'underweight' from 'equal-weight' earlier, as the consensus looks too optimistic on margin expansion for Crompton Greave, said Morgan Stanley.
The brokerage also maintained its 'underweight' call on Bajaj Electricals on the FMEG player's lower earnings visibility. A key factor to watch for the firm will be a turn-around in rural consumption. It is unrealistic to assume that Bajaj Electricals' premium portfolio will drive growth and margin recovery, said Morgan Stanley.
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During FY22-FY24, the FMEG (fast-moving electrical goods) companies were impacted by steep inflation initially and deflation later. The launch of of Bureau of Energy Efficiency guidelines and steep price hikes were instrumental in FY23.
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