Consumer durables companies like Voltas and Havells India have seen their stock prices surge in trade on April 2, after the Met Office issued warnings of a heatwave as a result of extreme weather conditions.
IMD Director General Mrutyunjay Mohapatra said temperature is expected to be above normal in most parts of the country during April to June. "Ten-20 days of heatwaves are expected in different parts as against normal four-right days in April-June," he said.
As a result, air cooler and air conditioner maker Voltas saw its share surge 5.4 percent intraday, while electrical goods company Havells India's stock jumped 2.5 percent.
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However, in a report, ICICI Securities debunked the claim that the heatwave will have any impact on the revenue growth of summer products.
"While the narrative of ‘heatwaves result in higher growth of summer products (fans, air coolers, air conditioners and refrigerators)’ is popular, we believe historical data does not support this," said the broking firm in a report.
There were no heatwaves in India during FY02-FY12, whereas there were four heat waves in India during FY12-FY22. According to the broking firm, summer product companies reported higher revenue CAGR during FY02-FY12.
"During fiscal years 1992-2002, India had three heatwaves but Voltas reported revenue CAGR of just 3.7 percent," the report pointed out.
Instead of the heat wave, factors such as increase in affordability of products, steady launches of differentiated products and distribution expansion are key growth drivers.
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.
For the FMEG companies, migration of users from the unorganised to organised sector is likely to drive revenue growth and premiumisation should boost profitability. However, near-term performance is likely to be muted and may weigh on stock prices.
Therefore, Havells India, with the most diverse product portfolio and thrust on premiumisation, remains ICICI Securities' top pick.
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